U.S. Autos & Auto Parts Initiation 26 June 2019 The Challenge of the Two Clocks Equity Research Americas

Research Analyst Research Associate Dan Levy Robert Moon Tel: + (212) 325-4617 Tel: + (212) 325-7112 [email protected] [email protected]

DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS, LEGAL ENTITY DISCLOSURE AND THE STATUS OF NON-US ANALYSTS. US Disclosure: Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. Table of Contents 3 – Executive Summary / Stock Calls / Comp Table 7 – The Challenge of the Two Clocks 13 – The Challenge of the “Near”: Cycle Risks to the Downside 37 – The Challenge of the “Far”: Electric Vehicles 49 – The Challenge of the “Far”: Autonomous Vehicles 64 – Our Dilemma on Auto Stocks 74 – Company Tear Sheets 88 – Appendix

All share prices and price-related data as at 24 June 2019

Dan Levy | 212-325-4617 | [email protected] 2 Executive Summary

• The auto industry’s challenge is concurrently balancing two clocks – the ‘near’ and the ‘far.’ Simultaneously balancing cyclical with secular is not easy, requiring different skillsets and resource allocations. This will be THE challenge for the industry over the next several years: • The challenge of the ‘near’ – no-growth industry outlook, with volatility and risk to downside. Requires added focus to manage cycle risk. • The challenge of the ‘far’ – Multi-decade disruptive secular shift ahead for the automotive industry in the push to vehicle electrification and autonomous driving, and we are barely in the first inning. Yet attention and resource allocation required now, to avoid the risk of becoming a dinosaur. • Margin pressures indicate challenge of balancing the near and far.

• Our ‘two clocks’ industry view implies continued challenges to auto stocks over the mid- term. Yet with sentiment on auto stocks currently deeply negative, we see near-term opportunity based on valuation and underlying fundamentals: • Outperform: Ford (F), Aptiv (APTV), American Axle (AXL), BorgWarner, (BWA), Dana (DAN), General Motors (GM) • Neutral: Adient (ADNT), Delphi (DLPH), Lear (LEA), Magna (MGA), Veoneer (VNE) • Underperform: Tesla (TSLA)

Dan Levy | 212-325-4617 | [email protected] 3 Industry coverage summary

Target Upside/ One Liner Ticker Company Name CS Rating Price Downside Textbook case for the “Two Clocks.” Undergoing concurrent redesign of business profitability alongside longer F Ford Motor Company OUTPERFORM $13 31% term reimagining of business. Yet upside ahead for stock amid early signs of improvement, with more to come.

Right balance of the “Two Clocks.” One of the best names in our coverage balancing the ‘near’ (healthy profit GM General Motors Company OUTPERFORM $48 30% stream, improving FCF) with the ‘far’ (near or at the front of AV pack, doubling down on EVs) offering a compelling narrative on both fronts.

Exposure to the right products and trends give APTV one of the best growth outlooks in the space. This, combined APTV Aptiv PLC OUTPERFORM $90 15% with strong positioning in balancing the ‘two clocks,’ drives our Outperform rating.

American Axle & Amid challenged valuation, AXL stock is attractive given a potential 2H19 inflection in datapoints (best earnings delta AXL OUTPERFORM $15 28% Manufacturing Holdings, Inc. in our coverage), and also due to solid and highly underappreciated FCF generation

Underappreciated strategy and narrative – differentiated end market diversity, resilient business model, with solid DAN Dana Incorporated OUTPERFORM $22 23% contribution from M&A.

One of the best growth profiles in our supplier coverage, with robust backlog supporting solid outgrowth vs. mkt. In BWA BorgWarner Inc. OUTPERFORM $50 20% spite of LT risk for EVs, oppty ahead for BWA, with hybrid serving as a growth driver, and offering arguably the most complete portfolio in EV components relative to other suppliers.

Opportunity ahead for operational recovery, and long-term opportunity for growth given a robust order book. Yet DLPH Delphi Technologies Plc NEUTRAL $21 17% we are Neutral on the stock given sluggish top-line in 2020 and as it will take time for operations to fully improve.

Narrative shifting amid the pivot from “Lear 1.0” to “Lear 2.0.” Increased focus on tech to improve multiple and drive LEA Lear Corporation NEUTRAL $155 12% growth amid challenged industry, yet risk ahead of margin compression.

We see solid FCF generation ahead, which will help to support EPS growth in the face of what we see as limited MGA Magna International Inc. NEUTRAL $55 13% EBIT growth. Yet given our outlook for modest top-line growth and that it may take time for the FCF story to drive a re-rating, we remain on the sidelines for the time being.

Stock has struggled amid operational missteps. We believe profits have troughed, with recovery ahead. Yet given ADNT Adient plc NEUTRAL $24 9% long path to recovery with execution risks on top of cycle risks, we prefer to be on the sidelines.

Potential to be the best organic revenue growth story amongst parts suppliers, with robust order book driven by VNE Veoneer, Inc. NEUTRAL $18 4% exposure to the high-growth active safety space. Yet with significant resources required to execute VNE’s growth plan, EBIT breakeven not expected before 2023.

Tesla is leading in areas that will define the future of carmaking, yet it nevertheless faces risks amid its growth path TSLA Tesla Inc UNDERPERFORM $189 -15% – reflected in our below-consensus estimates. And despite growth ahead, Tesla is more likely to settle as a niche automaker

Source: Credit Suisse estimates, FactSet Dan Levy | 212-325-4617 | [email protected] 4 Industry coverage summary – comp sheet

U.S. Autos Comp Sheet In USD, except where noted otherwise Last Target Upside / P/E EV/EBITDA Market Cap EPS CAGR FCF Yield Div Name Ticker Rating Price Price (Downside) FY19E FY20E FY19E FY20E (bn) FY19-21E FY19E Yield Ford Motor Company F O $10 $13 31% 7.1x 6.9x 2.3x 2.4x 39,770 6.9% 1.7% 6.0% General Motors Company GM O $37 $48 30% 5.6x 5.8x 3.3x 3.4x 53,075 0.2% 8.8% 4.1% Tesla Inc TSLA U $224 $189 -15% na 39.4x 22.8x 13.0x 38,687 na 0.2% 0.0% OEMs Average (ex TSLA) 30% 6.3x 6.3x 2.8x 2.9x 3.5% 5.3% 5.1% OEMs Median (ex TSLA) 30% 6.3x 6.3x 2.8x 2.9x 3.5% 5.3% 5.1%

Adient plc ADNT N $22 $24 9% 13.9x 6.9x 6.7x 5.7x 2,058 -4.5% -11.0% 2.5% American Axle & Manufacturing Holdings, Inc. AXL O $12 $15 28% 4.2x 4.2x 4.1x 4.1x 1,322 -4.9% 25.4% 0.0% Aptiv PLC APTV O $78 $90 15% 15.6x 13.7x 10.5x 9.6x 20,325 7.2% 4.0% 1.1% BorgWarner Inc. BWA O $42 $50 20% 9.9x 9.1x 6.2x 5.8x 8,636 5.0% 6.6% 1.6% Dana Incorporated DAN O $18 $22 23% 5.4x 5.1x 4.4x 4.2x 2,595 9.4% 10.7% 2.2% Delphi Technologies Plc DLPH N $18 $21 17% 5.7x 4.9x 4.8x 4.3x 1,593 -0.5% 0.8% 3.8% Lear Corporation LEA N $138 $155 12% 7.9x 7.0x 4.6x 4.4x 8,717 6.8% 10.5% 2.1% Magna International Inc. MGA N $49 $55 13% 7.8x 7.0x 4.7x 4.6x 15,936 6.2% 11.0% 2.9% Veoneer, Inc. VNE N $17 $18 4% na na na na 1,510 na -36.6% 0.0% Suppliers Average (ex VNE) 17% 8.8x 7.2x 5.7x 5.3x 3.1% 7.2% 2.0% Suppliers Median (ex VNE) 16% 7.8x 6.9x 4.7x 4.5x 5.6% 8.5% 2.1%

Sources: Credit Suisse estimates, FactSet Note – Ford and GM EV/EBTIDA valuation excludes finco net debt Dan Levy | 212-325-4617 | [email protected] 5 US Autos & Auto Parts Coverage Overview Links to our initiation reports Thematic deep dives: The Challenge of the "Far": AVs

The Challenge of the "Far": EVs

Outperform: F: The textbook case for the “Two Clocks” GM: The right balance of the ‘Two Clocks’ APTV: Story of the shifting pies keeps growth robust AXL: Positive data point inflection, strong FCF story DAN: Solid Strategy at an Attractive Price BWA: Robust growth narrative, long-term opportunity in EV world

Neutral: DLPH: The path and challenges to profitable growth LEA: Lear 1.0 vs. Lear 2.0 – a pivoting narrative MGA: Free cash flow – the key link in the diverse product strategy ADNT: Recovery ahead, but risks and long timing keep us on the sidelines VNE: Double-digit growth opportunity, but long path to profitability

Underperform: TSLA: Tesla vs. VW – the debate that will likely define Tesla for the next 10 years

Dan Levy | 212-325-4617 | [email protected] 6 The Challenge of the Two Clocks

Dan Levy | 212-325-4617 | [email protected] 7 The auto industry’s challenge – balancing two clocks Simultaneously balancing cyclical with secular is not easy, requiring different skillsets and resource allocations. This will be THE challenge for the industry over the next several years

The Near The Far

. The “near” represents the challenges of . The “far” represents the multi-decade secular navigating through the auto industry cycle – shift ahead for the auto industry – the transition ensuring supply meets demand, and that the to electric vehicles and autonomous driving business is run in a healthy manner

The challenges of this balancing act have magnified in the past year. Late cycle pressures and volatility have made the “near” a tougher environment. At the same time, with long-term disruption risks coming into greater focus, industry participants have no choice but to concurrently address the “far.”

Source: Credit Suisse Research Note – the “clocks” concept was originally cited by Ford in its Oct’2017 Strategic Update, as it cited Dan Levy | 212-325-4617 | [email protected] 8 three clocks – “now”, “near” and “far” The challenge of the near No-growth industry outlook, with volatility and risk to downside, requires added focus to manage cycle risk

. Cycle was helpful in the past, as strong profit generation Global IHS Light Vehicle Production Estimates could be used to fund future tech development costs mn units CY 2018 CY 2019 101 2.1% . Industry still healthy, operating at elevated levels 100 Y/Y 99 . However, 2018 showed volatility of cycle, with negative 98 revisions globally, coming from all key regions (North 97 96 1.9% America, Europe, China) – i.e. nearly a year ago 2019 95 Y/Y global light vehicle production was forecast by IHS 94 -2.7% Y/Y Automotive (a third-party data provider) to be up 2% y/y, 93 -1.0% 92 Y/Y but is now forecast to be down 1% 91

. Other macro pressures created added headwinds – i.e.

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May-18 May-19 tariffs/trade, commodity prices – these factors still Source: IHS Automotive serving as pressures CS Light Vehicle Production Estimates . For nearly all companies, these pressures drove margins down y/y in 2018 – marking the first year post-crisis of Light Vehicle Production Credit Suisse Estimates 000's Units 2018 2019E 2020E 2021E margin decline North America 16,959 16,572 16,261 16,162 . Must be balanced with the challenge of the ‘medium’ – Europe 21,993 21,283 21,178 21,330 increasing content cost in vehicles to meet regulatory China 26,853 25,002 25,016 25,252 Global 94,184 91,094 91,003 92,505 requirements over coming years Y/Y % Delta 2018 2019E 2020E 2021E . No-growth outlook ahead, with volatility and risk to North America -0.6% -2.3% -1.9% -0.6% downside, meaning the challenge of the “near” will Europe -1.0% -3.2% -0.5% 0.7% remain a focus China -4.1% -6.9% 0.1% 0.9% Global -1.0% -3.3% -0.1% 1.7% Source: Credit Suisse estimates, IHS Automotive

Sources: IHS Automotive, Credit Suisse Research Dan Levy | 212-325-4617 | [email protected] 9 The challenge of the far Multi-decade disruptive secular shift ahead for the automotive industry. Yet attention and resource allocation are required now, to avoid the risk of becoming a dinosaur

. Vehicle electrification and the push to autonomous driving are the two long-term ‘megatrends’ of the automotive industry . These will be multi-decade transitions, and we are barely in the first inning: – In 2018 BEVs (battery electric vehicles) represented only ~1.5% of light vehicles sold globally, and we expect it will take another ~30 years for BEVs to account for the majority of global vehicle sales – Vehicles with advanced driver assist / basic autopilot features only starting commercialization now, with more advanced forms of autonomy still in testing phase and very far off . Yet strategic focus and allocation of resources required now, to avoid the risk of becoming a dinosaur: – A myriad of challenges need to be addressed to enable uptake – New competitors and modification of value chain create an added layer of risk – Autonomous driving threatens to radically alter vehicle ownership and the automotive business model – Significant portions of budgets to be devoted to development . With the sound of disruption becoming louder as time progresses, attention and resource allocation toward this will only increase

Dan Levy | 212-325-4617 | [email protected] 10 E-commerce as a case study for the far Retailer margins pressured in early stages of e-commerce. Similarly, margins for automotive industry participants are likely to be pressured amid the radical shift to autonomous driving and electrification ORLY, AZO . E-commerce serves as a case 1.00 TSCO study on disruption – retailer Hardline Retail EBIT 0.90 WSM Margin Investment 0.80 margins pressured in the early BBY Curve; 0.70 TGT stages of e-commerce Most retailers continue 0.60 WMT DKS SPW 0.50 penetration given elevated to follow similar trend H JWN 0.40 investment cost, as well as the down, as they grow online and grapple with 0.30 challenge of concurrently other rising costs 0.20 HIB balancing brick-and-mortar retail 0.10 B BBB 0.00 Y with online 1 2 3 4 5 6 7 8 9 10 11 12 13 14 Number of Years (that Margins are Declining from Recent Peak) . The shift to emerging tech for Margin Change vs. E-commerce Penetration auto companies is likely to bring EBIT Margin Trajectory: Above the line – margin growers; margin pressures through at least CAGR 14-17E 10% BBY - US While online penetration is growing, store sales and the early stages of penetration: market share gains remain healthy limiting the margin 5% COSTPRTYHD LOW pressure to date. – Elevated investment spend ORLY ULTA 0% AZO – Potential cannibalization of Below the line – margin decliners; TSCO Group Avg -5% Online penetration is growing, in many cases current mature products / cannibalizing in store sales, or investments are WSM SPWH accelerating to catch up/ keep up with faster growing negative mix -10% AAP DKS competitors

– Modification of value chains JWN -15% – Shift in business model -20% – Emergence of new BBBY PIR -25% competitors 0% 10% 20% 30% 40% 50% 60% E-Commerce Penetration (2017E)

Sources: Credit Suisse Hardline Retail Research Dan Levy | 212-325-4617 | [email protected] 11 Margin pressures indicate the challenge of balancing near and far After a multi-year stretch of margin U.S. Autos EBIT Margin expansion coinciding with the Margins peaked in 2017 10% improvement of the cycle, industry U.S. Autos Adj. EBIT Margin margins largely peaked in 2016/17. 9.0% 8.8% And in 2018 margins compressed for 9% 8.2% 8.3% nearly all companies in our coverage 8.1% 8% 7.6% (albeit with varied magnitude), driven 7.4% 7.2% 7.2% 7.3% margins peaked in 2017 by a weaker environment for auto 7% sales/production, as well as headwinds 6.4%

from tariffs/commodities. 6% 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019E 2020E Note: U.S. Autos EBIT Margin - Credit Suisse Estimates for ADNT, APTV, AXL, BWA, DAN, DLPH, LEA, MGA, While some will see improvement this Ford, GM – Consensus (FactSet) for ALV, TEN, VC year and next related to self-help (i.e. Select OEM Electrification/Autonomy/New Mobility Announced Spend Ford, ADNT), generally more macro Company Electrification/Autonomy/New Mobility Spend Announcement pressure/volatility + increased spend Ford • Invest $11bn+ in electrification (2015-2022), and $4bn in AV development through 2023 GM • Double spend on Electrification and Autonomy on secular = further risk of margin FCA • Invest €9 bn in electrification by 2022 • Spend €44 bn (~$50bn) on electric cars, digitalization, new mobility and autonomous VW pressure driving by 2023 Daimler • €10 bn invested in e-mobility by 2022 JLR • Investing £13.5bn (~$18bn) in electrification over 3 yrs. ending in 2021 Toyota • Invest more than ¥1.5‎ tn ($13.3bn) through 2030 to develop EV batteries • Investing $40bn over a 5 year period starting in 2019 to develop electrified models, Hyundai Note: AV = autonomous vehicle, EV = electric vehicle autonomous technologies and transportation services • Established a VC fund with Renault and Mitsubishi, in 2018, to invest up to $1.0bn over 5 Nissan-Renault yrs. in AV technology Note: Credit Suisse Research, FactSet, Company data

Dan Levy | 212-325-4617 | [email protected] 12 The Challenge of the “Near”: Cycle Risks to the Downside

Dan Levy | 212-325-4617 | [email protected] 13 CS Global Light Vehicle Sales/Production Outlook Light Vehicle Production 000's Units 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19E 3Q19E 4Q19E 2017 2018 2019E 2020E 2021E 2022E North America 4,380 4,356 4,033 4,189 4,261 4,231 4,113 3,967 17,064 16,959 16,572 16,261 16,162 16,116 Europe 5,900 6,013 4,636 5,443 5,643 5,507 4,755 5,378 22,216 21,993 21,283 21,178 21,330 21,456 Greater China 6,766 6,742 6,227 7,118 6,040 5,861 6,043 7,058 28,013 26,853 25,002 25,016 25,252 25,536 Japan/Korea 3,361 3,226 3,062 3,556 3,366 3,227 3,285 3,245 13,264 13,204 13,124 12,733 12,636 12,726 South Asia 2,357 2,224 2,418 2,188 2,328 2,236 2,421 2,386 8,697 9,187 9,371 9,719 10,407 11,037 South America 823 880 903 825 783 930 992 847 3,291 3,431 3,553 3,697 3,996 4,176 Middle East/Africa 744 665 604 544 507 504 570 608 2,609 2,557 2,189 2,399 2,722 2,860 Global Production 24,331 24,107 21,883 23,863 22,928 22,496 22,180 23,490 95,153 94,184 91,094 91,003 92,505 93,907 YoY Change 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19E 3Q19E 4Q19E 2017 2018 2019E 2020E 2021E 2022E North America -3.3% -2.3% 1.6% 1.9% -2.7% -2.9% 2.0% -5.3% -4.3% -0.6% -2.3% -1.9% -0.6% -0.3% Europe 0.7% 4.8% -5.8% -4.4% -4.4% -8.4% 2.6% -1.2% 3.2% -1.0% -3.2% -0.5% 0.7% 0.6% Greater China -2.1% 10.2% -5.0% -15.5% -10.7% -13.1% -3.0% -0.8% 2.3% -4.1% -6.9% 0.1% 0.9% 1.1% Japan/Korea -2.4% -2.0% -5.6% 8.2% 0.2% 0.0% 7.3% -8.7% 2.8% -0.4% -0.6% -3.0% -0.8% 0.7% South Asia 6.6% 9.1% 6.4% 0.6% -1.2% 0.5% 0.2% 9.0% 3.2% 5.6% 2.0% 3.7% 7.1% 6.1% South America 11.5% 10.0% 2.3% -5.1% -4.8% 5.7% 9.8% 2.7% 19.9% 4.3% 3.5% 4.1% 8.1% 4.5% Middle East/Africa 11.1% 13.2% -6.9% -22.6% -31.8% -24.1% -5.7% 11.7% 13.5% -2.0% -14.4% 9.6% 13.4% 5.1% Global Production -0.1% 4.7% -2.7% -5.5% -5.8% -6.7% 1.4% -1.6% 2.2% -1.0% -3.3% -0.1% 1.7% 1.5% Light Vehicle Sales 000s Units 2017 2018 2019E 2020E 2021E 2022E Key Regions/Countries United States 17,200 17,261 16,822 16,541 16,084 15,639 W. Europe (EU15+EFTA) 16,282 16,236 16,196 16,008 16,059 16,139 Europe Total 20,573 21,005 21,512 21,898 22,463 22,873 China 28,879 28,081 29,048 29,358 30,441 31,540 Japan 5,234 5,271 5,426 5,314 5,115 5,051 India 3,693 3,878 4,188 4,607 5,022 5,471 Korea 1,782 1,809 1,818 1,824 1,812 1,803 YoY Change 2017 2018 2019E 2020E 2021E 2022E Key Regions/Countries United States -1.9% 0.4% -2.5% -1.7% -2.8% -2.8% W. Europe (EU15+EFTA) 2.6% -0.3% -0.2% -1.2% 0.3% 0.5% Europe Total 3.8% 2.1% 2.4% 1.8% 2.6% 1.8% China 3.9% -2.8% 3.4% 1.1% 3.7% 3.6% Japan 5.3% 0.7% 2.9% -2.1% -3.7% -1.3% India 8.2% 5.0% 8.0% 10.0% 9.0% 8.9% Korea -1.7% 1.5% 0.5% 0.3% -0.6% -0.5%

Source: IHS Automotive, Credit Suisse estimates Dan Levy | 212-325-4617 | [email protected] 14 Industry outlook Expecting modestly flat growth over next several years

Credit Suisse vs IHS Light Vehicle Production Estimates

Light Vehicle Production Credit Suisse Estimates IHS Estimates CS vs IHS - Delta 000's Units 2019E 2020E 2021E 2022E 2019E 2020E 2021E 2022E 2019E 2020E 2021E 2022E North America 16,572 16,261 16,162 16,116 16,635 16,405 16,552 16,836 (63) (144) (390) (721) Europe 21,283 21,178 21,330 21,456 21,490 21,602 22,189 22,320 (207) (424) (859) (864) China 25,002 25,016 25,252 25,536 26,074 27,415 28,750 30,214 (1,072) (2,399) (3,498) (4,679) Global 91,094 91,003 92,505 93,907 92,436 93,971 97,252 100,170 (1,342) (2,967) (4,747) (6,263) Y/Y % Delta 2019E 2020E 2021E 2022E 2019E 2020E 2021E 2022E 2019E 2020E 2021E 2022E North America -2.3% -1.9% -0.6% -0.3% -1.9% -1.4% 0.9% 1.7% -0.4% -0.5% -1.5% -2.0% Europe -3.2% -0.5% 0.7% 0.6% -2.3% 0.5% 2.7% 0.6% -0.9% -1.0% -2.0% 0.0% China -6.9% 0.1% 0.9% 1.1% -2.9% 5.1% 4.9% 5.1% -4.0% -5.1% -3.9% -4.0% Global -3.3% -0.1% 1.7% 1.5% -1.9% 1.7% 3.5% 3.0% -1.4% -1.8% -1.8% -1.5%

Key Notes: . We take a more conservative stance in all key regions than IHS Automotive (the primary third party forecaster for the automotive industry) . Global auto industry still operating at elevated volumes, yet we forecast flat growth, with risk to downside and volatility ahead: . North America: While still healthy, US auto industry in late part of cycle, with modest declines expected over next several years . Europe: Potential Brexit-related volatility/risk near-term; 2021 emission targets could create some disruption . China: Most volatile of the three main regions. Volumes could improve in 2H if stimulus enacted. Yet no growth expected over next several years amid questionable industry health

Sources: Credit Suisse estimates, IHS Automotive Dan Levy | 212-325-4617 | [email protected] 15 Outlook for light vehicle production has deteriorated… …reminding us of the underlying volatility and cycle pressures for the auto industry globally

North America IHS Light Vehicle Production Estimates Europe IHS Light Vehicle Production Estimates

mn units CY 2018 CY 2019 mn units 0.4% CY 2018 CY 2019 -0.2% 17.8 23.0 Y/Y 17.6 Y/Y 17.4 22.5 17.2 1.7% 1.9% 17.0 Y/Y -2.2% Y/Y 16.8 Y/Y 22.0 -2.1% 2H production cuts 16.6 -0.6% Y/Y primarily related to 16.4 Y/Y -1.2% 21.5 WLTP tansition, with 16.2 Y/Y Brexit concerns adding 16.0 to volatility

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China IHS Light Vehicle Production Estimates Global IHS Light Vehicle Production Estimates

mn units CY 2018 CY 2019 mn units CY 2018 CY 2019 31 5.0% 101 2.1% 2H decline related to Y/Y 100 Y/Y 30 softening demand 99 29 98 28 97 -4.4% 96 27 0.7% 1.9% Y/Y 95 26 Y/Y Y/Y -3.8% 94 -2.7% 25 Y/Y 93 -1.0% Y/Y 24 92 Y/Y

23 91

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Source: IHS Automotive, Credit Suisse Research Dan Levy | 212-325-4617 | [email protected] 16 Long-term US SAAR history Over past ~30 years, normalized SAAR in 15-17mn range

U.S. Light Vehicle SAAR – 6 Month Moving Average 20

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12 SAAR SAAR mn units

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Source: BEA, Credit Suisse Research Note: Gray overlay = recessionary period; SAAR = Seasonally Adjusted Annual Rate

Sources: BEA, Credit Suisse Research Dan Levy | 212-325-4617 | [email protected] 17 But debate is whether SAAR has peaked or plateaued Since 2015 SAAR largely flat in ~17mn range

U.S. Light Vehicle SAAR – 3 & 6 Month Moving Avg. U.S. Light Vehicle SAAR – 3 Month Avg. Y/Y Growth

18 8% SAAR largely flat Since 2016 sales have been largely flat to down the last few years 6% 17 4%

16 2%

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May/12 May/13 May/14 May/15 May/16 May/17 May/18 May/19 6mMA 3mMA Avg. SAAR 2015-Curr. LV Unit Sales - 3mMA Y/Y Delta Average Source: BEA, Credit Suisse Source: Wards Infobank, Credit Suisse

Sources: BEA, Wards Infobank, Credit Suisse Research Dan Levy | 212-325-4617 | [email protected] 18 We are in the late stages of the US auto cycle Industry still healthy, but trajectory modestly negative

US auto industry health considerations

. Mix – positive mix shift decelerating, but direction still positive . Used car pricing – Healthy, with supply unlikely to increase much further

. Consumer health – Consumer health still strong, yet unlikely to improve much; consumer sentiment around auto purchases has deteriorated in recent years . Auto financing – Still healthy, but delinquencies increasing and standards tightening . Scrappage – Scrappage rate low, but average vehicle age may be structurally higher . Pricing – Incentive activity has increased, but pricing still healthy and trending positively . Inventory – Industry slightly elevated, driven by particular OEMs

. Capacity utilization – Utilization low . Retail/fleet – Retail under pressure, increased reliance on fleet . Secular pressures – Millennial interest in vehicle ownership declining, ridesharing likely eroding some vehicle ownership

Dan Levy | 212-325-4617 | [email protected] 19 Positive segment mix shift to continue, from sedans to CUVs Pace of shift decelerating, but more room to run Key Takeaways: U.S. Vehicle Mix by Segment . Unprecedented mix shift from Sedans to Unprecedented mix shift from Sedans to CUVs/SUVs

CUVs/SUVs – ~15 points of mix shift over past 5 13% 14% 14% 14% 15% 16% 17% 17% 6% 5% 6% Pickup years 5% 6% 5% 5% 5% 7% 7% 7% 7% . Recent exits in sedan products from Ford and 8% 8% 8% 9% Van 24% 26% Sport Utility GM imply further positive mix shift ahead 27% 30% 32% 35% Cross Utility 39% 40% 7% . CUVs/ SUVs/Pickups have maintained steady 8% 8% Luxury Car 7% 6% 6% Large Car growth over the last 3 years, while sedans have 21% 20% 19% 17% 6% 6% 15% 13% Middle Car declined considerably 11% 11% 20% 19% 18% Small Car 17% 16% 15% 13% 12%

2012 2013 2014 2015 2016 2017 2018 2019 YTD Vehicle Sales by Segment – Y/Y Growth U.S. Vehicle Mix by Segment Group Further declines in Sedans expected as GM and Ford exit sedans 15 pts of mix shift to CUVs/SUVs from 2013 - 2018

Small Car Middle Car Cross Utility Sport Utility Pickup Total Sedans CUV/SUV Van/Pickup 100% 30% CUVs / SUVs have maintained strong growth, 90% 19% 22% while sedans have seen sharp declines 80% 20% 70% 32% 60% 47% 10% 50% 40% 30% 0% 49% 20% 31% 10% -10% 0%

-20% 2010 2011 2012 2013 2014 2015 2016 2017 2018

Source: Wards Infobank, Credit Suisse Research 20 Note: CUV = crossover utility vehicle (i.e. a small SUV), think a Ford Escape Dan Levy | 212-325-4617 | [email protected] CUV segment crowded, but still offers superior margins to sedans… while mix in pickups remains steady, serving as the profit engine for the U.S. OEMs 2018 U.S. CUV/SUV Share by OEM CUV/SUV # of Models in the Market CUV/SUV share highly fragmented Further proliferation is expected

Daimler, 2% Other 5 OEMs, BMW, 2% 4% 200 # US industry CUV/SUV models GM, 16% 187 Mazda, 2% 181 VW, 4% 180 164 Hyundai, 6% 160 149 Toyota, 14% 137 Subaru, 7% 140 128 120 115 120 110 Ford, 9% 104 103 100 Honda, 13% Fiat Chrysler, 9% 80 Nissan, 11% 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 Source: Wards Infobank Source: IHS Automotive Industry Average Transaction Prices by Segment GM NA Avg. Variable Profit per Unit by Vehicle Type ATPs for larger vehicles much higher than sedans; as mix shifts positive, Specific to GM, yet segment profit discrepancies likely directionally similar should drive industry ATPs higher for other OEMs – reminding us that trucks are the profit engines for OEMs Industry Industry ATPs by Segment Segment % of U.S. Sales 2014 2015 2016 2017 2018 GM North America Variable Profit Per Unit Compact Car 12.0% $19,120 $18,646 $18,711 $18,664 $18,997 y/y change -1.2% -2.5% 0.3% -0.3% 1.8% $14,600 Midsize Car 9.0% $22,429 $22,039 $21,952 $21,797 $23,323 y/y change -1.8% -1.7% -0.4% -0.7% 7.0% Small SUV 7.7% $23,014 $22,823 $22,517 $22,542 $22,435 y/y change -1.6% -0.8% -1.3% 0.1% -0.5% $8,100 Compact SUV 17.0% $26,183 $26,113 $26,154 $26,398 $26,790 y/y change 1.0% -0.3% 0.2% 0.9% 1.5% Midsize SUV 13.8% $33,037 $34,129 $34,627 $34,278 $34,648 $4,100 y/y change 2.1% 3.3% 1.5% -1.0% 1.1% Large Pickup - LD 9.8% $36,090 $38,007 $39,044 $40,069 $40,802 $1,600 y/y change 6.5% 5.3% 2.7% 2.6% 1.8% Total Industry Average 100.0% $29,990 $30,602 $31,163 $31,739 $32,544 y/y change 2.3% 2.0% 1.8% 1.8% 2.5% Average Truck Crossover Car Source: J.D. Power Source: Company Data, Credit Suisse Research

Source: J.D. Power, Company Data, Wards Infobank, IHS Automotive, Credit Suisse Research Dan Levy | 212-325-4617 | [email protected] 21 Used car pricing healthy amid peaked supply and steady demand Used car pricing is important, as it directly factors in to over 50% of new car purchases (leases + trade-ins) Key Takeaways: Manheim Used Pricing Index

. Used car pricing supported by peaked supply, consumer 145 Manheim Used Pricing Index strength, and improving mix 140 139.6 135 . Stronger used pricing supports better lease pricing and 130 trade-in value 125 120 115 110 105 100 95 90

Annual Lease Maturities Lease maturities provide a sense for new supply hitting market. Off-lease Source: Manheim Consulting ‘tsunami’ peaking this year, implying reduced risk of supply pressuring used pricing Average New Car Prices vs Average Used Car Prices

4.5 4.1 $15k Manheim Non-Adjusted Used Vehicle Price, ls $40k 3.9 3.9 Average new vehicle transaction price per JDP, rs $38k 4 3.7 3.6 3.5 3.5 $14k $36k 3.5 3.1 $13k $34k 3 2.5 $32k 2.5 2.2 $12k $30k 2 $28k $11k $26k million million units 1.5 $10k $24k 1 $22k 0.5 $9k $20k 0 2014 2015 2016 2017 2018 2019E 2020E 2021E 2022E 2023E Source: Cox Automotive Source: Manheim Consulting, J.D. Power

Dan Levy | 212-325-4617 | [email protected] 22 Consumer health still strong Consumption growth steady, supported by tight labor market/good wage growth, and elevated savings rate Real Consumer Spending Personal Saving Rate Our economists expect consumption growth to rebound to solid growth after Compared to the period before the last recession, the savings rate remains slowing in Q1 elevated and has room to fall 15 Percent Personal Savings Rate (Savings / DPI) 4%

2% 10

0% 5 -2% Real Consumer Spending, QoQ% annnualized Forecast -4% 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 0 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 Source: Credit Suisse U.S. Economics, BEA Source: Credit Suisse U.S. Economics, BEA

Vacancy to Unemployment Ratio & Labor Differential Aggregate Weekly Payrolls of All Private Employees Other labor market indicators, including job vacancies and consumers’ Personal income is supported by a tight labor market perceptions of labor market tightness, continue to point to a strong labor market

7% %YoY 3m/3m annualized 4.4% trend 1.3 Vacancy-Unemployment Ratio, lhs 50 Labor Differential, rhs 1.1 6% 30 0.9 5% 10 0.7 4% -10 0.5 3% 0.3 -30

2% 0.1 -50 11 13 15 17 19 85 87 89 91 93 95 97 99 01 03 05 07 09 11 13 15 17 19 Note: Labor differential is the % of respondents who think jobs are Source: Credit Suisse U.S. Source: Credit Suisse U.S. Economics, BLS plentiful - % who think jobs are hard to get; Vacancy – Unemployment Economics, Conference Ratio is the # of job vacancies available per unemployed person Board, BLS

Dan Levy | 212-325-4617 | [email protected] 23 Consumer confidence elevated… …Yet sentiment on vehicle purchases has declined, reminding us that retail upside to SAAR is limited Consumer Sentiment – Vehicles & Large Household Durables Consumer Confidence / Sentiment Consumer attitudes toward vehicle purchases have deteriorated in the Remains at peak levels post crises past year+, reminding us of pressure to retail SAAR

160 UMich consumer sentiment survey on buying conditions; % balance index (good-bad) Conference Board Consumer Confidence 170 large household durables 140 Univ. of Michigan Consumer Sentiment 160 vehicles

120 150

100 140

130 80 120 60 110 40 100

20 90 98 00 02 04 06 08 10 12 14 16 18 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19

Source: Credit Suisse U.S. Economics, University of Michigan, Conference Board, Bloomberg Source: Credit Suisse U.S. Economics, University of Michigan

Dan Levy | 212-325-4617 | [email protected] 24 Auto financing still quite healthy… Subprime penetration below pre-crisis levels, average credit scores rising

Percentage of vehicles sales with financing (2018 Qrtrly Avg.) Annual New Vehicle Lease Penetration Why does financing matter? It accounts for 85% of new car purchases, Lease penetration elevated, but steady in recent years and over half of used purchases

85% Subprime more heavily levered 28% Annual Lease Penetration Avg. toward used market, ~25% loans 26% 24% 54% 22% 20% 18% 16% 14%

12%

1999 2006 2014 1998 2000 2001 2002 2003 2004 2005 2007 2008 2009 2010 2011 2012 2013 2015 2016 2017 2018 New Used 1997 Source: Experian, Credit Suisse Research Source: Wards Infobank, CNW Marketing Research, Credit Suisse Research Average Credit Score at Auto Loan Origination Mix of Auto Loan Originations by Credit Score Credit scores are solidly above historical averages Non-prime mix currently below pre-crisis levels 10th Percentile Avg. 10th Percentile Median Avg. Median <620 620-659 660-719 600 720 720-759 760+ Non-Prime Avg. 590 100% 580 710 80% 570 700 560 60% 550 690 540 40% 530 680

520 670 Median Score Credit 20%

10th Percentil 10th Percentil Credit Score 510

500 660 0%

1999 2006 2015 2000 2001 2002 2003 2004 2005 2007 2008 2009 2010 2011 2012 2013 2014 2016 2017 2018

2004 2000 2001 2002 2003 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Source: New York Fed Consumer Credit Panel / Equifax Source: NYFCC, Equifax; Note: we refer to non-prime as credit scores below 660

Dan Levy | 212-325-4617 | [email protected] 25 …Yet seeing some signs that financing is less supportive Delinquencies ticking up and lending standards tightening, while elevated monthly payment and loan terms indicate little upside from financing Net % of U.S. Banks Tightening Standards For Auto Loans Average Auto Loan Term and Interest Rate Percent Avg. loan maturity (months) Avg. Interest Rate (%) Months % 15 Lending standards loosened through 2015, after which standards tightened 70 Avg. loan terms relatively steady but 12 10 elevated; likely has little room for upside 11 5 65 10 0 60 9 8 -5 55 7 -10 6 50 -15 5 4 -20 45 3

-25 40 2

2004 2011 1995 1996 1997 1998 1999 2000 2001 2002 2003 2005 2006 2007 2008 2009 2010 2012 2013 2014 2015 2016 2017 2018

3Q11 1Q16 1Q11 2Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19 Source: Federal Reserve Economic Data Source: Bureau of Labor Statistics, Federal Reserve, Experian Note: above 0 shows net tightening, below 0 shows net loosening

Average Monthly Payment at All-Time High Transition of Auto Loans into Serious Delinquency (90+ days)

$600 <620 620-659 660-719 720-759 760+ Monthly auto loan payments at an all-time high, primarily due to mix, but also reflecting higher rates % Delinquencies healthy in prime loans, but have risen in subprime / non-prime $550 10 9 $500 8 7 $450 6 $400 5 4 $350 3 2 $300 1

0

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 1995 2001 2003 2005 2007 2009 2011 2013 2015 2017 Source: Bureau of Labor Statistics, Federal Reserve, Experian Source: New York Fed Consumer Credit Panel / Equifax

Dan Levy | 212-325-4617 | [email protected] 26 Inventories somewhat elevated vs. historical levels… …with most key OEMs running above average U.S. Industry Inv. DS – Latest Iteration of Respective Month U.S. Industry Inventory Days Sales over Corresponding Monthly Avg. (2012 – Current) Over the past year, monthly inventories have run modestly above Most of the key OEMs have been running above average on inventories. average, albeit not at an alarming level Some of it may be related to product shifts (i.e. FCA’s transition for Wrangler and Ram LD), but also a function of modest oversupply Inventory Days Sales Monthly Avg. (1985-Current) Inventory Fiat Chrysler Ford General Motors 90 Latest Iteration of Respective Month Days Sales Honda Renault Nissan Toyota 85 25 Latest Inventory Reading 20 80 Latest inventory reading was 4 days above historical average 15 75 10 70 5 65 0 60 -5 55 -10 50 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec -15 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Note: Monthly average reading for Jan = the average of all prior Januaries Note: Delta of current reading over average is graphed. I.e. if GM average historical inventory days sales for April is 81.5, and most recent April GM reading was 87.3, delta is 6.8

Month End U.S. Industry Inventory Days Sales

125 Inventory Days Sales Month End Inventory Days Sales Simple Avg. 12 Month Avg. 115 105 95 85 75 65 55 45 35 25

Sources: Wards Infobank, Credit Suisse Research Dan Levy | 212-325-4617 | [email protected] 27 Scrappage rates low… …but elevated vehicle age likely reflects households keeping cars longer In the past we would have assumed low scrap Average Age of Light Vehicles in the U.S relative to historical average implies opportunity for The average vehicle age has been increasing, indicating higher quality vehicles and likely driving a reduced scrappage rate sales to grow. Yet households holding cars longer Years Avg. Age of Light Vehicles in the U.S. – likely reflecting better quality of vehicles 12 11 U.S Scrappage Rate 10 Scrap rate below long-term average, but in-line with 10-yr moving 9 average 8 7 Annual Scrappage Rate 6

8% Avg. (1980-2019)

1996 1999 2009 2012 1997 1998 2000 2001 2002 2003 2004 2005 2006 2007 2008 2010 2011 2013 2014 2015 2016 10 YR Moving Avg. 1995 7% Source: The R.L. Polk Co., Vehicles Getting Older: Average Age of Light Cars and Trucks in U.S. Rises Again in 2016 to 11.6 Years, IHS Markit

6% Average Age of Light Vehicles in the U.S by Vehicle Type Average age has increased for all segments, but especially for 5% trucks Average Vehicle Age of U.S. Household Vehicles 4% Year Automobile Van Sport Utility Pickup Other Truck 1990 7.6 5.9 na 8.4 14.5 1995 8.2 6.7 6.6 9.7 14.9 3% 2001 9.0 7.6 6.4 10.1 17.7

2009 9.5 8.7 7.1 11.2 17.8

1980 2006 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2008 2010 2012 2014 2016 2018 1982 2017 10.1 10.7 8.3 13.1 17.3 Source: Experian, Credit Suisse Research, Polk Source: U.S. Department of Transportation, NHTS, Federal Highway Administration Note: Annual scrappage rate = total light vehicles scrapped during the respective year as a % of prior year vehicles in operation

Dan Levy | 212-325-4617 | [email protected] 28 Incentive activity increased, but still at healthy levels Positive mix has driven total industry pricing higher; pricing within segments has been more of a mixed bag U.S. Retail Annual Incentives as a % of Average Transaction Prices

14% Total Industry 22% Large Pickup Industry incentives near high post crisis, but 13% 20% Large pickup incentive activity largely steady despite intense still at healthy level 18% competition – demonstrating health of the segment 12% 16% 11% 14% 10% 12% 9% 10% 8% 8% 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

16% CUV/SUVs Sedans CUV/SUV segments reflecting Sedan segments still elevated, yet saw incentive activity 14% fragmented share and intense 18% decline in past year as some supply has been cleared / 12% competition product has exited the market 14% 10%

8% 10%

6% 6% 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Compact SUV Midsize SUV Compact Car Midsize Car Average U.S. Retail Transaction Prices by Segment ($USD) Nearly all segments with higher ATPs, indicating positive mix effects, even within the segments; continued positive mix shift could drive industry ATPs higher; ATPs may also increase as OEMs try to pass through elevated costs to consumers Simple Growth Segment 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 (2008 to 2018) Compact Car 17,811 18,025 17,488 19,297 19,676 19,357 19,120 18,646 18,711 18,664 18,997 7% Midsize Car 21,100 21,044 20,931 21,708 22,211 22,832 22,429 22,039 21,952 21,797 23,323 11% Compact SUV 22,416 23,060 23,867 24,377 24,987 25,928 26,183 26,113 26,154 26,398 26,790 20% Midsize SUV 27,972 29,030 30,025 31,272 31,304 32,355 33,037 34,129 34,627 34,278 34,648 24% Large Pickup 27,058 30,336 32,558 33,511 34,838 36,199 38,622 40,537 41,836 43,490 44,131 63% Industry 25,505 26,317 27,643 28,337 28,585 29,328 29,990 30,602 31,163 31,739 32,544 28%

Source: JD Power, Credit Suisse Research Dan Levy | 212-325-4617 | [email protected] 29 Capacity utilization has declined… …and at risk of further deterioration with more capacity coming online

Key Observations: North America OEM Announced Investments

. North America capacity utilization peaked in 2014, and has since $bn declined meaningfully. And with more capacity coming online in 40 Announced the face of declining US sales, utilization likely to decline further. investment has slowed in recent . Capacity projected to increase in years ahead. However, some 30 years, likely due to opportunity to reduce capacity by eliminating 3-crew/ 3-shift late cycle concerns operations, rather than closing plants altogether. Capacity 20 CUV/sedan flexibility could also help.

. Investment not altogether ceased. Rather, recent investment 10 announcements reflect shifting trends - i.e. FCA investing $4.5bn in SE Michigan plants for next-gen Jeep products; Ford investing $1bn in Chicago plant for new utility-vehicles; Mercedes investing 0 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 in AL for EV production Source: Center for Automotive Research, “CAR Book of Deals,” 2018

North America Industry Straight-Time Capacity & Utilization North America Straight Time Utilization by OEM

mn units Straight Time Capacity, lhs Straight Time Utilization, rhs Straight Time Utilization, lhs Straight Time Capacity, rhs mn units 24 100% 95% 4.5 91% 90% 89% 90% 90% 4.0 80% 84% 21 Announcements 85% 3.5 70% 81% from GM in late 80% 3.0 60% 2018 regarding 76% 77% 18 50% capacity 75% 2.5 reductions 40% should drive 70% 2.0 30% improvement 65% 15 65% 1.5 20% 60% 1.0 10% 12 0% 55% 0.5 50% 0.0 GM Ford FCA Toyota Renault - Honda VW Hyundai Nissan Source: IHS Automotive Source: IHS Automotive

Dan Levy | 212-325-4617 | [email protected] 30 Retail demand has frayed in recent years Fleet sales have kept SAAR intact. While fleet sales are typically profitable for OEMs, they are a lower quality channel than retail U.S. SAAR Dissected by Retail & Feet Y/Y Change in Retail vs Fleet Retail Fleet mn units Retail Retail sales have modestly eroded over the 20 20% 17.4 17.5 17.3 Fleet past three years, with fleet sales increasing to 16.5 17.2 15.5 16% Total keep overall US vehicle sales largely intact 14.4 15 3.2 3.4 3.2 3.6 12.7 2.7 2.9 12% 11.6 2.7 2.3 8% 10 2.4 4% 13.5 14.1 14.1 14.0 13.7 11.6 12.8 0% 5 9.3 10.4 -4% 0 -8% 2010 2011 2012 2013 2014 2015 2016 2017 2018 2011 2012 2013 2014 2015 2016 2017 2018

Source: JD Power, Credit Suisse Research Source: JD Power, Credit Suisse Research

Channel Mix of Fleet, 2018 Unit Sales 2018 Y/Y % Growth for Fleet Channels

Government 10% 10% 8.8% Commercial 8% 27% 7.0%

Rental is typically 6% the lowest quality channel within fleet 4% 2.4% 2%

Rental 0% 63% Commercial Rental Government Source: Cox Automotive Source: Cox Automotive

Dan Levy | 212-325-4617 | [email protected] 31 Millennial interest in vehicle ownership has declined… …while growth of ridesharing obviating the need for vehicle ownership for some in the most dense urban areas Difficult to quantify the impact of secular pressures, but likely having an impact on the margin at the very least, and likely to accelerate in the Growth of ridesharing trips coming years While the Uber trip data is not purely representative of the US trip data, it . I.e. increased rideshare likely to reduce vehicle purchases and provides an indication of the sharp growth of ridesharing ownership, especially in dense urban areas Uber Trips 1.6 Summary Stats – Top 40 U.S. Cities by Pop. Density (Billions) 1.5 1.3 Growth of ridesharing could obviate the need for vehicle ownership for 1.2 some in the most dense urban areas 1.1 1.1 1.0 0.9 Avg. Population Density 0.8 0.7 Avg. Vehicles per Household (persons/sq mile) Total Population 0.5 1.34 10,876 43,138,845 0.4 0.3 Source: U.S. Census Bureau, Governing calculations of 2015 and 2016 one-year Census American Community Survey estimates, Credit Suisse Research

U.S. % of Vehicle Trips by Distance 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19 >75% of vehicle trips are <= 10 miles…ideal for ridesharing services Source: Company Data, Credit Suisse Research

77% of vehicle trips are 10 miles or less % Vehicle Trips Share of New Light Vehicles Purchased by Age Group 16% 17% Average age of car buyers has increased, with youngest buyers 14% representing a lower % of mix 10% (Percent) 8% 8% Age group: 16 Age group: 35 Age group: 50 Age group: 6% Year 5% 5% 5% 5% - 34 years - 49 years - 54 years 55+ years 2000 28.6 39.2 11.1 21.2 2005 24.3 36.6 11.5 27.4 Less 1 mile 2 miles 3 miles 4 miles 5 miles 6 - 10 11 - 15 16 - 20 21 - 30 31 miles 2010 19.8 31.4 12.2 36.5 than 0.5 miles miles miles miles or more miles 2015 22.6 29.9 11.2 36.4

Source: National Highway Traffic Safety Administration, Credit Suisse Research Source: J.D. Power and Associates, Board of Governors of the Federal Reserve

Dan Levy | 212-325-4617 | [email protected] 32 Europe industry still healthy… …but volume outlook has trended down Annual Europe Light Vehicle Production

mn units EU Production Y/Y Growth 24 20% 22.0 22.2 22.0 21.5 21.3 21.3 15% 22 20.7 20.8 21.0 21.2 20.2 15.5% 20.2 20.1 10% 20 19.0 19.3 19.5 5% 6.2% 6.1% 0% 3.3% 4.0% 3.2% 18 2.8% 1.1% 2.7% 0.0% 16.5 -1.0% -0.5% 0.7% -5% -3.2% 16 -5.6% -4.4% -10% -15% 14 -20%

12 -20.7% -25%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

2020E 2021E Source: IHS Automotive, Credit Suisse Research 2019E Annual Europe Light Vehicle Sales Europe Industry Straight Time Capacity & Utilization Brexit adds layer of uncertainty/risk Utilization peaked in 2015-17, but has since declined Production (mn units) mn units Straight Time Capacity Straight Time Utilization Country 2012 2013 2014 2015 2016 2017 2018 2019E 2020E 30 86% France 2.3 2.2 2.2 2.3 2.4 2.5 2.6 2.6 2.5 Germany 3.3 3.2 3.3 3.5 3.6 3.7 3.7 3.7 3.6 84% Italy 1.5 1.4 1.5 1.7 2.0 2.2 2.1 2.2 2.2 28 Spain 0.8 0.8 1.0 1.2 1.3 1.4 1.5 1.6 1.6 82% UK 2.3 2.5 2.8 3.0 3.1 2.9 2.7 2.6 2.6 Other W.Europe 3.0 2.8 2.9 3.2 3.4 3.5 3.5 3.5 3.4 26 80% W. Europe (EU15+EFTA) 13.2 12.9 13.6 14.9 15.9 16.3 16.2 16.2 16.0 Europe TOTAL 18.2 18.0 18.3 18.9 19.8 20.6 21.0 21.5 21.9 78% Y/Y Change (%) 24 76% Country 2012 2013 2014 2015 2016 2017 2018 2019E 2020E France -13.3% -5.5% 0.4% 5.9% 5.6% 5.0% 3.3% -0.9% -3.2% 74% Germany -3.2% -4.2% 3.1% 5.5% 4.8% 2.8% 0.3% 0.3% -4.6% 22 Italy -21.7% -7.5% 5.2% 15.6% 18.8% 6.9% -3.0% 4.0% 2.7% 72% Spain -15.0% 4.1% 19.9% 22.7% 11.0% 8.7% 7.1% 2.3% 1.6% UK 3.9% 11.0% 10.3% 7.4% 2.0% -5.4% -6.1% -4.4% 1.3% 20 70% Other W.Europe -10.3% -4.7% 3.4% 10.0% 4.8% 3.2% 0.0% -0.7% -1.4% W. Europe (EU15+EFTA) -8.8% -1.8% 5.4% 9.2% 6.5% 2.6% -0.3% -0.2% -1.2% Europe TOTAL -5.6% -1.4% 1.8% 3.3% 4.9% 3.8% 2.1% 2.4% 1.8% Source: Credit Suisse estimates Source: IHS Automotive

Dan Levy | 212-325-4617 | [email protected] 33 2021 emissions targets may drive EU disruption Prices likely to increase for consumers as OEMs pass on some cost of the added tech

. Challenge ahead for the European auto industry Europe NEDC Passenger Car Emissions Targets around CO2 emission targets. Average emissions 200 ) Historical Emissions were 120.5 g/km in 2018, and automakers must 180 meet the 2021 target of 95 g/km, with a further 160 2015 target: reduction of 37.5% by 2030 on passenger cars. 140 130 g/km 120 2021 target: . The emissions targets could create a challenge for 95 g/km 100 2025 target: automakers – at a minimum vehicle content costs 80 ~81 will increase. And with some vehicle electrification 2030 target: 60 ~59 required to meet targets (i.e. plug-in hybrids and 40

battery electric vehicles), potential risk to volumes 20 Average CO2 emission values (g/km, NEDC (g/km, values emission CO2 Average as automakers will have no choice but to pass on 0 some of the elevated cost to customers. . The case for volume to remain intact: vehicle Source: International Council on Clean Transportation content increased in prior Europe emissions Europe NEDC Passenger Car Emissions Targets standards (i.e. Euro 6 in effect in 2014), with OEMs CO2 values (g/km, NEDC) passing some of the added content cost to Manufacturer EU market 2017 2020/21 Distance consumers – yet volumes not impacted. Thus with group share average target to target electrification providing some benefit to consumers Toyota 5% 103 94 9 PSA 16% 112 91 21 from TCO perspective (total cost of ownership), Renault-Nissan 15% 112 93 19 consumers may accept some of the higher cost. Average 119 95 24 FCA 6% 120 91 29 Ford 7% 121 95 26 BMW 7% 122 101 21 Hyundai Motor Company 6% 122 94 28 Volkswagen 23% 122 96 26 Daimler 6% 127 103 24 Source: International Council on Clean Transportation

Sources: Credit Suisse Research, IHS Automotive, ICCT Dan Levy | 212-325-4617 | [email protected] 34 China outlook Expecting no growth over next several years; introduction of stimulus could drive upside to 2H volume estimate, but be prepared for volatility

China Annual Light Vehicle Production Forecast After a prolonged run of solid growth, we expect flat to low mn units Light Vehicle Production Y/Y Growth growth in values beyond 2019 30 60% 48% 25 50% 40% 20 31% China Quarterly Passenger Vehicle Sales 23% 20% 30% Significant volatility has been the underlying trend in recent 15 16% 14% 14% 20% 8% quarters, making China a difficult operating environment; most 10 5% 5% 4% 3% 2% 0% 1% 1% 10% recent sales decline driven by consumer slowdown -4% 5 -7% 0% mn units 8 7.4 7.5 40% 0 -10% 31% 7 6.3 6.0 30% 5.8 5.8 5.5

6 5.4 5.5 18% 5.3

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

2005 5.2 5.2 5.2

2020E 2021E 2022E 2019E 20% 5 9% 15% Source: IHS Automotive, Credit Suisse Research 6% 8% 4 5% 4% 10% 0% 0% 3 China Annual Passenger Vehicle Sales -8% 0% 2 -15% -14% -10% Passenger vehicle sales Years w/ Auto Stimulus Policies Y/Y Growth 1 30 mn units 65% 0 -20% 55% 1Q162Q163Q164Q161Q172Q173Q174Q171Q182Q183Q184Q181Q19 25 47% 23.6 24.2 23.3 Passenger vehicle sales Y/Y Growth 20.0 45% 20 34% 18.4 Source:CAAM 16.3 35% 15 12.2 13.6 11.3 19% 18% 25% We forecast production to decline in 2019. Yet upside possible 13% 10 8.4 12% 9% 7% 8% 15% to our estimate if stimulus enacted. The industry reacted well to 3% 5 5% stimulus measures in 2009 and 2016 5.7 -4% 0 -5% 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Source: CAAM, Credit Suisse Research

Dan Levy | 212-325-4617 | [email protected] 35 China outlook – the era of elevated growth likely over After an extended period of robust industry growth, we expect no growth beyond 2019 amid questionable industry health China Vehicle Penetration per 1,000 Persons China Financing Penetration Rising vehicle ownership was historically the central point of the case for strong Finance penetration has increased significantly in recent years. While still below China auto volume growth. Yet as China car parc flattens out, opportunity for other countries, financing somewhat of a concern, as recent uptick in penetration incremental sales limited was not a primary driver of volume growth. Moreover, rising household debt ratios 1,200 remain a risk for China financial stability. China Global Peers 1,000 100% 90% 800 80% 600 70% 60%

400 50% 92% 40% 70% 75% 200 30% 60% 65% 45% 20% 38% Units Units per '000 persons 33% 0 10% 18% 20% 11% 11% 13% 15% 17% 1965 1969 1973 1977 1981 1985 1989 1993 1997 2001 2005 2009 2013 2017 0% Korea Taiwan Japan China USA India Indonesia Germany Source: IMF, CEIC Source: SIC Survey, CPCA Survey, CADA China Straight Time Capacity & Utilization China Dealer Inventory Days Utilization has declined significantly and currently in 50% range. By comparison Inventory days have remained at relatively healthy levels North America and Europe both in the 70-80% range. mn units Straight Time Capacity Straight Time Utilization Inventory Days 2016 Avg. 2017 Avg. 2018 Avg. 2019 Avg. YTD 60 100% 60 55 90% 55 50 45 80% 50 40 70% 45 35 30 60% 40 25 50% 35 20

15 40% 30

Jul-16 Jul-17 Jul-18

Jan-19 Jan-16 Jan-17 Jan-18

Jun-16 Jun-17 Jun-18

Oct-16 Oct-17 Oct-18

Apr-19 Apr-16 Apr-17 Apr-18

Sep-16 Feb-18 Feb-16 Feb-17 Sep-17 Sep-18 Feb-19

Dec-16 Dec-17 Dec-18

Aug-16 Aug-17 Aug-18

Nov-17 Nov-16 Nov-18

Mar-16 Mar-17 Mar-18 Mar-19

May-16 May-17 May-18 May-19 Source: IHS Automotive, Credit Suisse Research Source: CAAM, CPCA, Credit Suisse Research

Dan Levy | 212-325-4617 | [email protected] 36 The Challenge of the “Far”: Electric Vehicles, a Multi-Decade Challenge

Dan Levy | 212-325-4617 | [email protected] 37 Our EV framework – EVs are a multi-decade challenge!

Electric Vehicle Industry Framework

Advances in OEMs Increasing Increased Model Charging / Technology / Commitment to Infrastructure OEM Margin Risks Options / Raw Materials Electric Cost Electrification Spend Availability Infrastructure Battery costs have Increased investment, Governments, public Potential path of battery More EV models Raw material prices Public charging improved in recent more product utilities, OEMs, start- cost curve means hitting the may impact battery infrastructure needs to years, starting to development, with some ups, and others placing powertrain cost parity market, but costs be built, question of who make electric committing to an all- greater focus on between ICE and EV comparability still pays for the powertrains more electric future growing EV charging could take another two limited relative to infrastructure build-out; feasible stations and supporting decades; adoption faster ICE options Electrical infrastructure / infrastructure than cost curve implies grid needs to be modified margin pressure for to accommodate OEMs; likely negative mix charging build-out effect as OEMs shift from ICE to EV Environmental 4. CS Conclusion Awareness Increased societal focus on the EVs will dominate in the environment, in part driven by future; however, the many VW's diesel scandal, has led challenges ahead imply governments to propose or enact 1. Catalysts 2. Responses 3. Challenges the transition will take bans on vehicles powered by longer than implied by the fossil fuels, while also leading hype some consumers to demand more environmentally friendly vehicle options Costly Transition The Tesla Risk to Parts Capacity / Social Cost to Dealer Base New Entrants for OEMs, ICE Effect Suppliers Cost Consumers Considerations Still Lives Tesla's increased Entities beyond Suppliers potentially at Nearly half of current EVs not yet Dealer base generally Significant cost ahead prominence, traditional automotive risk as many of the OEM capacity footprint priced similarly not educated on EVs; for automakers for combined with participants playing an ICE powertrain product relates to with current ICE not incentivized to sell product development, significant media increased role in shaping niches are reduced or engine/transmission plants, comps EV given potentially architecture transition, attention and a the future of eliminated, and OEMs yet EV manufacturing reduced service and capacity popular following, has electrification revisit value chain, with requires much smaller business modification; also, while drawn more attention potential for more footprint; capacity declining, OEMs still to electrification insourcing transitions are expensive devoting significant among various parties and have a social cost portion of budget toward ICE powertrain

Source: Credit Suisse Research Dan Levy | 212-325-4617 | [email protected] 38 Challenges to EV penetration A variety of challenges need to be addressed by different parties to enable EV penetration

Challenge Impacted Party Considerations

Public charging infrastructure needs to be built; question of who pays for the Charging options / infrastructure Consumer / Ecosystem infrastructure build-out

Vehicle cost to consumer Consumer / Automaker EV models not yet priced similarly with current ICE comps

Model availability Consumer / Automaker More EV models hitting market, but comparability still fairly limited relative to ICE options

Potential path of battery cost curve means powertrain cost parity between EVs and ICE vehicles may not occur for another two decades; adoption faster than cost curve implies Margin considerations Automaker margin pressure for automakers, all else equal; likely negative mix effect as OEMs shift from ICE to EV

Battery capacity Automaker / Ecosystem Battery capacity must be expanded to address increased EV volume

While declining, OEMs still devoting solid piece of budget toward ICE; transition of Extended life of ICE Automaker architectures to EV from ICE is long dated

Dealer base generally not educated on EV; not incentivized to sell EV given potentially Dealers Automaker reduced service business

Nearly half of current OEM capacity footprint related to engine/transmission plants, yet Capacity / social cost Automaker / Ecosystem EV manufacturing requires much smaller footprint…capacity transitions are expensive and have a social / political cost

Electrical infrastructure Ecosystem Electrical infrastructure / grid needs to be modified to accommodate charging build-out

Raw materials Ecosystem Raw material prices and availability may impact battery prices Note: BEV = battery electric vehicle, ICE = internal combustion engine, EV = electric vehicle (i.e. battery electric vehicle or a hybrid electric vehicle

Source: Credit Suisse Research Dan Levy | 212-325-4617 | [email protected] 39 Powertrain penetration forecast

Credit Suisse New Light Vehicle Sales Powertrain Penetration Forecast by Key Region

Region % of Market Percent of Units Sold by Powertrain Type U.S. 2018 2018 2020 2025 2030 2035 2040 2045 2050 ICE Hybrid mild Hybrid strong PHEV BEV U.S. 19% 100% ICE (non-hybrid) 96% 90% 74% 53% 38% 32% 20% 13% 80%

Hybrid - mild 1% 3% 11% 22% 32% 33% 27% 17% 60% Hybrid - strong 2% 3% 6% 9% 10% 8% 7% 7% 40% PHEV 1% 2% 3% 4% 2% 0% 0% 0% BEV 1% 2% 6% 11% 18% 28% 47% 64% 20%

W. Europe 19% 0% ICE (non-hybrid) 95% 81% 53% 25% 15% 5% 3% 8% Hybrid - mild 1% 10% 21% 34% 35% 33% 28% 18% Hybrid - strong 2% 3% 5% 6% 2% 1% 1% 1% Europe ICE Hybrid mild Hybrid strong PHEV BEV PHEV 1% 4% 11% 18% 16% 13% 8% 3% 100% BEV 1% 2% 10% 18% 33% 48% 60% 70% 80% China 29% ICE (non-hybrid) 95% 85% 51% 12% 3% 3% 3% 3% 60% Hybrid - mild 0% 6% 22% 34% 27% 20% 14% 14% 40% Hybrid - strong 1% 1% 3% 3% 3% 2% 2% 2% 20% PHEV 1% 2% 4% 0% 0% 0% 0% 0% BEV 3% 6% 21% 51% 68% 76% 82% 82% 0% RoW 34% ICE 95% 92% 84% 73% 63% 54% 47% 40% China Hybrid - mild 1% 2% 6% 11% 16% 20% 21% 21% ICE Hybrid mild Hybrid strong PHEV BEV Hybrid - strong 4% 5% 6% 9% 9% 9% 8% 8% 100% PHEV 0% 1% 1% 3% 4% 5% 5% 6% 80% BEV 0% 1% 2% 5% 8% 13% 19% 25% 60% Global 100% ICE (non-hybrid) 95% 88% 68% 46% 36% 30% 25% 22% 40% Hybrid - mild 1% 5% 14% 22% 24% 24% 21% 18% 20% Hybrid - strong 2% 3% 5% 7% 6% 6% 5% 5% 0% PHEV 1% 2% 4% 5% 5% 4% 4% 3% BEV 2% 3% 9% 21% 29% 36% 45% 52%

Source: Credit Suisse estimates Dan Levy | 212-325-4617 | [email protected] 40 Battery price - why so important?... Key Points: . The battery serves as the core of the electric powertrain . For EVs to be feasible for both automakers and consumers, battery pack prices must come down significantly from the current level of ~$150-200/kwh. . While there is a near-term line of sight to ~$140-150/kwh (primarily driven by scale), further improvements will likely require tech/chemistry improvements, and likely next-gen technology or chemistry such as solid state batteries

CS Battery Pack Cost Forecast BNEF Forecast of Lithium Ion Battery Pack Prices Declines in cell cost expected to drive lower battery cost, reflecting Battery pack prices have declined significantly in the last 8 years; increased scale and improved tech however, further improvements will likely occur at a slower rate

$/kWh 600 Automotive Battery Cost Observed price 18% learning rate 1,000 500 900 BNEF observed values: annual lithium-ion battery price index 800 400 2010-17. 700

300 600 $/kWh 500 2030 average 200 400 2025 average lithium-ion lithium-ion battery battery price: 300 price: $96/kWh $70/kWh 100 200 0 100 2012 2014 2016 2018E 2020E 2025E 2030E 2040E 0 Cells Battery Management System Other Labour Logistics 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 Source: Credit Suisse Research, Company Data Source: Bloomberg New Energy Finance

Dan Levy | 212-325-4617 | [email protected] 41 Because powertrain cost parity at center of EV tipping point debate We estimate battery prices must decline to a level of ~$75/kwh for the bulk of electric powertrains to cost the same as current internal combustion engines Key Takeaways: . For automakers to offer EVs at prices comparable to Estimated Timing of ‘Tipping Point’ to Electrification by Segment – today’s vehicle offerings, electric powertrains must decline U.S. Market to a cost similar to internal combustion engines. To accomplish this for the bulk of the market, all else equal, Premium Mass-market Work we estimate that battery prices must decline to a range of vehicles vehicles vehicles Timing of transition to ~$75/kwh – vs. the current cost of ~$150-200/kwh. 2020s/2030s Late 2030 / 2040s 2040s+ electrification . For markets such as the U.S., where cost to the consumer will play a more primary role in driving EV % of market ~10% ~70% ~20% uptake (as opposed to regulation), we estimate that the Estimated required battery pack ‘tipping point’ for EV penetration may not occur until the ~$75-100 ~$60-75 ~$50-70 price ($/kwh) for tipping point 2040 timeframe, as next-gen battery tech/chemistry may be required to achieve the lower battery cost Source: Company Data, Credit Suisse Research

Illustrative Analysis of Cost Parity to OEMs between Internal Combustion Engine Vehicles and Comparable EVs – U.S. Mkt While powertrain cost parity will be more easily achievable for vehicles at higher price points, battery price will need to come down to sub $75/kwh for cost parity to be achieved on mass market vehicles

Segment Assumed Implied Assumed Total Assumed Battery Assumed Implied battery Segment Market segments Comp % of US Segment Vehicle Powertrain as % Powertrain Size (kwh) for EV Range price ($/kwh) ASP Market Gross Margin CoGS of total CoGS Cost Comp (mi) for cost parity Mass mkt - small sedan Honda Civic $19,000 12% 10% $17,100 24% $4,104 35 175 $72 Mass mkt - mid sedan Toyota Camry $24,500 12% 11% $21,805 21% $4,579 40 200 $72 Mass mkt - small SUV (small/mid CUV) Jeep Cherokee $27,500 26% 15% $23,375 21% $4,909 40 200 $73 Mass mkt - mid SUV Ford Explorer $35,000 15% 20% $28,000 20% $5,460 47 225 $70 Premium - small sedan BMW 3 Series $39,000 2% 20% $31,200 20% $6,084 55 260 $74 Premium - small SUV Mercedes GLC $45,000 4% 28% $32,400 22% $6,966 55 260 $83 Premium - mid sedan or SUV Audi A6 $55,000 3% 33% $36,850 21% $7,554 60 275 $83 Premium - large car BMW 7 Series $87,000 2% 35% $56,550 14% $7,917 60 275 $87 Source: Company Data, Credit Suisse Research, J.D. Power

Dan Levy | 212-325-4617 | [email protected] 42 Social and political implications of the EV transition Nearly half of the manufacturing footprint may need to be addressed

Key Takeaways: Global Mix of Engine, Transmission . Electric powertrains are far simpler than an internal combustion engine powertrain. The & Assembly Plants number of moving parts in an average combustion engine is an order of magnitude (or Transmission Engine Assembly more) higher than the number of moving parts vs. an electric powertrain, and the manufacturing time required for an EV is much less than an ICE vehicle (Audi has noted that it takes 30% less time to make an e-drive unit than an engine). Accordingly, the manufacturing and labor footprint required for an electric vehicle is far less than that of 21% an internal combustion engine vehicle. . With nearly half of the manufacturing capacity for automakers related to engines and 56% transmissions (which are largely eliminated in an EV world), there will be a significant 24% cost ahead, as automakers will be forced to reposition their labor and manufacturing footprints. The monetary cost could be high, and there could also be political / social risk as well. # of Engine, Transmission, & Mix of Engine, Transmission and Assembly Plants by OEM Assembly Plants by Region

Number of Plants Tran/Eng Assembly 0 20 40 60 80 100 500 General Motors 42% 450 400 Ford 48% 350 FCA 42% 300 250

Volkswagen 37% 200 # of Plants of # Daimler 35% 150 Tran/Eng 100 BMW 30% Assembly 50 PSA 35% 0 North America Europe Greater China Note: # of engine and transmission plants adjusted for plants that serve dual purposes; excludes plants outside North America, Europe and China Source: IHS, Credit Suisse Note: # of engine and transmission plants adjusted for plants that serve dual purposes; Dan Levy | 212-325-4617 | [email protected] 43 excludes plants outside North America, Europe and China Charging infrastructure must expand significantly Build-out of charge points will be costly; while some parties have stepped up, unclear who will take the lead Key Takeaways: Cumulative Public Charging Points . To increase consumer acceptance of EVs and enable penetration, EV China Europe U.S. charging infrastructure must be vastly expanded. 12 11 . 10 For ample charging network density to be available to 8 consumers, we estimate the number of charge points in 8 US/Europe/China combined would need to grow at a ~25%

CAGR through 2030 6 mn units mn 4 . The build-out of required Level 2 and DC fast charge infrastructure will 3 be costly – potentially ~$1.5-4bn annually through 2030 (and that’s 2 2 2 excluding the cost of modifying the grid to support the infrastructure). 1 0

. There will likely be a consortium of organizations involved in

2025 2036 2019 2020 2021 2022 2023 2024 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2037 2038 2039 2040 building out the infrastructure – automakers, government, public 2018 utilities, industrial conglomerates, start-ups, and oil companies. Source: BNEF, Credit Suisse Research Note: includes public charge points, including units slower than typical Level 2 chargers Yet unclear who will take the lead. (i.e. below 5 kw); initial charge point density based off data from BNEF

Global Public Charging Outlets Charging Infrastructure Build-Out through 2030 could Potentially Cost ~$20-55bn

Other <3kW Charge Number of Base Case Charge Upside Case Charge Cost Per Base Total Upside Total 1% >43kW 6% Country Type EVs (mn) Points (000) Points (000) Charge Point Spend ($mn) spend ($mn) 23% Level 2 10.9 909 1,818 $2,500 2,273 4,546 USA Fast Charge 20 39 $30,000 589 1,178 Level 2 72.4 8,050 24,149 $1,200 9,659 28,978 China Fast Charge 207 621 $15,000 3,105 9,314 Level 2 20.0 1,541 3,083 $2,500 3,853 7,707 3-20kW Europe 42% Fast Charge 45 89 $30,000 1,336 2,672 Total Spend 20,815 54,395 20-43W Years 13 13 28% Annual Spend 1,601 4,184 Source: BNEF Source: Source: Company data, Rocky Mountain Institute, US Dept. of Energy, Credit Suisse estimates

Dan Levy | 212-325-4617 | [email protected] 44 A lot of product hitting market over next few years… …yet market still lacks comparable option vs ICE Key Takeaways: 2018 BEV Unit Production by Model (with Units of 20k+) . Current EV model availability limited – OEMs (ex China) China OEMs outside of China, most BEV volumes 0 50,000 100,000 150,000 200,000 0 20,000 40,000 60,000 80,000 100,000 went to Tesla and Renault-Nissan. Tesla-->Model 3 152,977 BAIC-->EC Series 90,033 BYD-->E5 46,222 . Number of electrified models hitting the Nissan-->Leaf 99,008 Jianghuai-->iEV6e 43,189 market expected to increase sharply in Tesla-->Model S 51,784 BYD-->Yuan EV 35,704 Tesla-->Model X 49,769 the coming years, with much more of Hawtai-->Lusheng… 34,119 Renault-->Zoe 49,428 an inflection post 2020. Product Jiangling-->E200 32,513 General Motors--… 32,725 increase in both BEV and PHEV Geely-->Emgrand 31,592

formats, with product coming out Volkswagen-->Golf 26,860 Chery-->QQ 29,139

across all of the key regions - albeit, Hyundai-->KONA 26,678 BAIC-->EU Series 28,504

China is expected to account for BMW-->i3 24,609 SAIC-->Ei5 26,178 roughly half of that product. Source: IHS Automotive, Credit Suisse Research . Despite model proliferation, thus far we Cumulative Electrified Vehicle Models Cumulative BEV Models Available have seen limited options of mass- Available Globally Globally volume EV models priced competitively BEV PHEV China US Europe ROW with comparable ICE vehicles – i.e. 450 390 250 400 options such as the Audi e-tron and 355 212 195 Jaguar I-Pace priced very high 350 313 200 172 (~$75k+), or mass market vehicles 300 178 241 160 137 priced well above comps (i.e. Chevy 250 141 150 184 Bolt at ~$37k+). 200 104 98 134 100 150 86 70 . Exceptions remain Tesla’s Model 3 88 212 48 100 63 64 195 36 44 172 50 26 51% 48% 47% 30 40 137 17 53% (priced somewhat comparably to other 50 19 27 98 11 55% 18 70 63% 57% 8 13 26 36 48 69% 63% mass-luxury options), and VW ID.3 (to 0 11 17 0 be priced sub $30k – similar to a VW 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 Source: IHS Automotive, Credit Suisse Research Source: IHS Automotive, Credit Suisse Research Golf Diesel). Note: only includes model variants with volumes of Note: only includes model variants with volumes of 10,000 units or higher 10,000 units or higher

Dan Levy | 212-325-4617 | [email protected] 45 Other barriers to EV uptake – ICE budgets, OEM margins, dealer considerations . The Internal Combustion Engine still lives! OEMs still devote a solid portion of their capital budget toward ICE powertrains (perhaps 10-20% of total spend), and while this level is declining, it can’t go to zero overnight. A Significant Portion of Dealer Moreover, the process of overhauling vehicle architectures for future EV lines will be lengthy, as architecture pivots Gross Profit Comes from are much more long-term in nature. Parts/Services – this Profit . Are OEMs ready for the negative margin ahead that will likely accompany electrification? OEMs need to Stream could see Risk in an EV- brace themselves for likely margin compression ahead, as they rotate mix from more profitable ICE vehicles to likely less profitable electric vehicles. And with investment in ICE vehicles declining and investment in EV lines Dominated World increasing, the negative margin mix shift will be all the more magnified as ICE sales decline and EV sales increase. This will force OEMs to consider other areas to salvage margins, such as re-evaluating capacity and the value % of Gross Profit Related Dealer Group chain. to Parts / Services, 2017 . The dealer base will also need to increase its focus on electrification to drive greater penetration. The Autonation 44% dealer base still needs to be educated on electrification. And more importantly, given lower maintenance costs for Group One 44% EVs than ICE vehicles, dealers may not be incentivized to sell EVs given a significant portion of their profit (in some Penske 38% cases close to half the profit) comes from parts/service – implying a premium may need to be added to prices EVs Lithia 33% are offered to consumers to compensate dealers for the reduced future maintenance/parts business. Source: Company Data Capital Allocation Breakout for Ford, GM, and FCA While OEM spend on internal combustion engine is a smaller piece of the capital budget, it is nevertheless still significant enough, likely representing 10-20% of total spend FCA 2018 - 2022 Capex Ford ICE Powertrain GM Capex Allocation Allocation Spend as a % of Total $9 bn $8.5 bn $8 bn $7.4 bn White-Space Infrastructure Capex $7 bn Products 43% 12% 15% $2.0bn Major Architecture $1.7bn $6 bn 30% 26% Asset Sustainment/BMI Powertrain $1.5bn $5 bn 15% $1.2bn Propulsion ~€45 bn $4 bn 23% 22% $1.0bn Major Top Hats 25% $3 bn Total 20% 20% $2 bn 23% $0.5bn 15% 40% $1 bn Product 11% Electrification Renewal $0.0bn $0 bn 2016 2022 Current 2022 Source: Company data Note: GM allocation to ICE and EV embedded within ‘propulsion’ category

Dan Levy | 212-325-4617 | [email protected] 46 Uptake of EVs will be a regional endeavor

Regional BEV Strength / Penetration Summary Table

Considerations BEV Penetration Societal Model Region Awareness Gov. Support Infrastructure Options 2018 2020 2025 2030 2040 2050 U.S. Low Low Medium Low 1% 2% 6% 11% 28% 64% Europe High High Medium Medium 1% 2% 10% 18% 48% 70% China High High High High 3% 6% 21% 51% 76% 82% Global 2% 3% 9% 21% 36% 52%

U.S. Europe China . Expected to be the laggard region in EV . EV inflection expected in 2030 timeframe . Expected to be the first of the key uptake, with inflection only in the 2040 . Emission regulations will force OEMs to regions globally with inflection in EV timeframe further increase mix of EVs in fleet over uptake (2020s) . Limited government support of the coming decade . Government (both national and local) electrification (especially in comparison to . Elevated social imperative to drive plays a key role in driving uptake, and Europe and China) means that uptake will electrification in the wake of VW’s diesel seems committed to global EV go at the pace of consumer acceptance – scandal. National governments offer leadership: attractive subsidy schemes, this could be a lengthy process given attractive incentive packages, while some restrictions on license plates for ICE required improvements in product have set out target dates for outright vehicles in key cities, growing charging availability, cost/price, and EV bans on the sale of ICE vehicles (i.e. infrastructure. infrastructure. Norway, France, Germany, Netherlands, . Government may also play a role in . Mix of trucks adds another impediment to Denmark) amount of cheap battery cells in the uptake, as this segment is significant market (~17% of sales), yet will likely take the . Wider set of model availability vs. other longest for BEV penetration to inflect. regions, with greater options at the value end of the spectrum

Source: Credit Suisse Research Dan Levy | 212-325-4617 | [email protected] 47 Current vs future powertrain landscapes for auto parts suppliers Current powertrain model – more niches, more differentiation; future model – less niches, less differentiation

Select Current Powertrain Niches – Key Competitors . Component landscape in the current ICE powertrain configuration is favorable to Product Competitive Set Engine suppliers - there are more niches for • BorgWarner • Continental • Garrett • IHI Turbochargers suppliers to occupy, and better • Mitsubishi Heavy • Bosch • Continental • Delphi • Denso opportunity to differentiate. And to the Fuel Injection Systems • Hitachi • Keihin • Magneti Marelli extent there is a concentrated set of • BorgWarner • Bosch • Continental • Denso Emissions Systems and Controls suppliers within these niches, it likely • Eberspaecher • Faurecia • Mahle • Tenneco Driveline / Transmission implies better pricing power / better • Aisin Seiki • BorgWarner • Bosch • Continental margins for the suppliers. • Dana • Denso • Dynax • GKN Transmission Systems and Components • JATCO • Linamar • Magna • Magneti Marelli . I.e. BorgWarner and Delphi both focus • NSK • Schaeffler • Valeo • ZF Driveline products (axles, etc) • American Axle • Dana • GKN on propulsion products, yet product • American Axle • BorgWarner • Dana • GKN All-wheel drive / torque transfer overlap in current landscape is very • JTEKT • Linamar • Magna limited. Note: above niches are a selection of key areas, but by no means encompass all powertrain niches.

. Yet in the future EV world, with Select BEV Niches – Key Competitors

powertrains far more simplified, there Niches in BEV will be fewer niches to occupy – Product Competitive Set arguably creating a more crowded • BYD • CATL • Farasis • GS Yuasa Battery cells • Guoxuan • LG Chem • Lishen • Northvolt field, with more blurred lines in • Panasonic • Samsung SDI • SK Innovation differentiating suppliers. • Aisin Seiki • BorgWarner • Bosch • Brose Motor (rotor, stator) • Dana • Denso • Hitachi • LG . It’s still very early days, and the • Schaeffler • Valeo • BorgWarner • Bosch • Continental • Dana competitive set may narrow over time. • Delphi • Denso • Hella • Hitachi Power Electronics / Battery Management System Yet we think the risk of an elevated • Hyundai Mobis • LG • TDK / Toshiba • Toyota Industries • Valeo • ZF competitive environment, amid fewer • Aisin Seiki • American Axle • BorgWarner • Bosch distinguished product niches in the eAxle / Drive unit (gear set) • Continental • Dana • GKN • Linamar • Magna • Schaeffler • ZF new powertrain landscape, is a risk • Aptiv • Lear • Leoni • Sumitomo Wiring which needs to be monitored. • Yazaki Note: above niches are a selection of key areas, but by no means encompass all BEV niches.

Source: Company Data, Credit Suisse Research Dan Levy | 212-325-4617 | [email protected] 48 The Challenge of the “Far”: Autonomous Vehicles, a Multi-Decade Challenge

Dan Levy | 212-325-4617 | [email protected] 49 Our AV framework – AVs are a multi-decade challenge!

Autonomous Vehicle Industry Framework

Highly Improved Government Technological Cost must decline Underutilized Existential risk Safety Regulation Hurdles sharply Assets Vehicles are incredibly AVs and ADAS Reduced cost per Establishing unified Despite the many Current AVs used for underutilized assets, technology have the mile of autonomous national standards for technological advances, testing/research purposes used only 5% of the potential to ridesharing will make autonomous driving will solving the "last 2%" will be a cost ~$400k each, yet cost day on average; AV drastically reduce some people be a lengthy and lengthy process given the must decline by ~50%+; can improve vehicle vehicle accidents question vehicle complex process myriad corner cases. while there is a line of sight utilization and road fatalities. ownership; ~30% of Progress must be made in for cost reduction, it will This would save U.S. vehicle fleet mapping; capabilities must nevertheless be a challenge lives and money for potentially at risk increase in compute power, consumers data mgmt, and data transfer

Very Large TAM! 5. CS Conclusion

AVs have many applications 2. Potential The transition to an AV including ridesharing, personal 1. Catalysts 3. Responses 4. Challenges world will be extremely ownership, and commercial Outcomes difficult and will take delivery of goods, leading to decades. There is a great what may be the largest deal of uncertainty for the business opportunity since the industry amid the creation of the internet incredible disruption

Technological Lots of $$$ Partnerships Balancing near/mid- Wide Competitive Convenience Advancements Invested Formed term with AV Set

Advancements in The average driver Traditional OEMs OEMs, suppliers, and In addition to long-term AV The competitive set in AV is machine learning, spends nearly 50 and suppliers are tech companies are investment, the OEMs unique, extending beyond the artificial intelligence, min driving daily. investing heavily forming partnerships concurrently face the near- traditional set of OEMs and sensing capabilities, AVs would free up through acquisitions to share costs, term challenge of scaling up Tier 1's, with many new compute power, data this idle time of AV tech startups leverage differing Level 2 active safety and entrants attracted - including management, and and developing tech skills, and accelerate vehicle connectivity, as well large tech players and start- other technologies in-house. Yet AV development as the initial roll-out of Level ups. This adds a layer of have made AVs investments have 2+/Level 3 autopilot uncertainty for the feasible long dated payback automotive incumbents

Credit Suisse Research Dan Levy | 212-325-4617 | [email protected] 50 Timing of autonomous driving roll-out Functionality continuing to advance, but reaching a fully autonomous society potentially won’t occur until 2040 or 2050 timeframe

Timeline of Autonomous Levels: Aptiv’s View - When Will Autonomous Vehicles Arrive? . Level 2 ADAS – currently in midst of inflection in U.S. . Level 2+ / base Level 3 for consumers (highway assist / base highway autopilot) – Initial roll-out has begun with products such as GM’s Super Cruise and Tesla Enhanced Autopilot; but start of inflection in penetration may not occur until late 2020 timeframe . Level 4 mobility on demand ridesharing in geofenced areas (without driver) – Initial deployments Source: Aptiv, Company & OEM Estimates, Boston Consulting Group, McKinsey & Company expected over next several years; ridesharing boundaries to expand, with L1 – L5 Automated Driving Definitions broader autonomous ridesharing likely L0 L1 L2 L3 L4 L5 Conditional in 2030s Operator No Automation Driver Assistance Partial Automation High Automation Full Automation Automation . Level 3 / base Level 4 for In charge of all the Must do all the driving, Must stay fully alert Must be always ready to Can be a passenger No human driver driving but with some basic help even when vehicle take over within a who, with notice, can required-steering wheel consumers – likely initial in some situations assumes some basic specified period of time take over driving when optional- everyone can e Driver commercialization in late 2020s / early tasks when the self-driving the self-driving systems a passenger in an L5 systems are unable to are unable to continue vehicle 2030s continue Responds only to inputs Can provide basic help, Can automatically steer, Can take full control Can assume all driving In charge of all the . Level 5 – unlikely to be commercialized from the driver, but can such as automatic accelerate, and brake in over steering, tasks under nearly all driving and can operate Vehicle provide warnings about emergency braking or limited situations acceleration, and braking conditions without any in all environments until mid/late 2030s, with inflection by the environment lane keep support under certain conditions driver attention without need for human intervention mid/late 2040s or 2050+ Sources: Intel, Society of Automotive Engineers (SAE); National Highway and Traffic Safety Administration (NHTSA)

Dan Levy | 212-325-4617 | [email protected] 51 Improving safety and convenience Autonomous driving could reduce the vast number of fatalities annually, while also improving the quality of time we spend in cars

Key Takeaways: U.S. Fatal Vehicle Crashes . There are 35,000-40,000 traffic/road # of Fatal Vehicle Crashes fatalities annually. Increasing autonomous 40,000 driving functionality could help to sharply 30,000 reduce the number of fatalities – some expect safety to be improved by 1-2 orders of 20,000

magnitude (implying only 400 or 4,000 10,000 fatalities) 0 . Autonomous driving can also improve 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 convenience. Per AAA, US drivers on average Source: NHTSA spend 51 minutes driving per day. While time in the car may remain the same in an Average Minutes Spent Driving Per Day in U.S. autonomous world, or potentially could even Average Minutes Driving Per Day Other Stats increase, freeing up that time to do something ~58.9 ~51 ~51.1 other than focusing on operating the vehicle ~49.9 ~44.5 would be a tremendous improvement for ~31.5 ~15.5 drivers.

Total Northeast West South Midwest Miles Per Trips Per Day Week Source: AAA Foundation for Traffic Safety, Credit Suisse Research

Dan Levy | 212-325-4617 | [email protected] 52 Very Large TAM

No shortage of estimates citing the potential market size ahead for autonomous driving. Citing just a few of these examples: . Consulting co. AT Kearney estimated a $558bn global market size in 2035+, consisting of $260bn for fully autonomous vehicles; $189bn for special equipment (for high/full automation); $67bn for apps/goods with digital and physical features; $42bn for mobile apps with digital features. . Consulting co. Frost & Sullivan estimated a $200bn revenue opportunity in 2030 across 12 different revenue streams, within mobility, vehicle services, logistics, and peripheral services. In particular, it sees shared mobility (shuttles) as a ~$75bn market globally by 2030 (dominated by NA and Europe), and automated taxis as a ~$40bn market globally by 2030 (with more than half in China). . Using US miles traveled as the basis of its calculation (3 trillion miles annually), GM has noted that as rideshare cost per mile is reduced to sub $1.00/mile, it would imply a TAM of $1.6tn. . Consulting co. Strategy Analytics estimated that by 2050 the global consumer mobility-as-a-service market will be $3.7tn, while the B2B mobility-as-a-service market will be $3.0tn. GM seems TAM of ~$1.6tn when cost/mile is sub $1.00 U.S. Passenger Rideshare Example

Source: GM

Dan Levy | 212-325-4617 | [email protected] 53 Cost per mile at the core of the AV opportunity Ridesharing cost inefficient; personal ownership cost much lower, but varies depending on mileage . Current ridesharing cost per mile to consumer is an $2.50 per mile. . Personal ownership cost per mile much lower ~68c, but varies Yet this cost is ‘inefficient’ – network owners are unprofitable on an depending on annual mileage driven – reminding us that increased EBIT basis, and with a swell of drivers in the system (depending on utilization / decreased depreciation per mile is at the core of driving location), the system is inefficient for drivers today, as utilization is cost down likely not what it needs to be to justify the net wage most drivers seek Current Estimated Rideshare Cost/Payout Per Mile Average Personal Vehicle Ownership Cost Per Mile

Cost/payout per mile assuming ~70k miles travelled Average personal vehicle ownership cost per mile, assuming annually @ 50% utilization = 35k revenue earning miles ~12k miles annually Total $0.68 with a passenger $0.70 Finance charge per Mile $0.06 $2.50 $0.60 0.08 Finance Depreciation per Mile $0.50 $0.27 License, registration, taxes $0.40 License, registration, taxes per Mile $2.00 $0.06 Insurance $0.30 Full-coverage insurance per Mile 0.98 $0.10 $0.20 Driver Labor $0.08 Maintenance per Mile $0.10 Cut $0.11 $1.50 Gas per Mile Depreciation $- 2018 Ownership Cost 0.17 Maintanence Average personal vehicle ownership cost per mile for different 0.24 miles driven $1.00 Fuel Cost per mile declines 0.23 $1.40 $1.28 over higher miles driven $1.20 $1.00 $0.75 $0.50 Note: assumes 50% of $0.80 $0.59 Network $0.51 $0.75 miles driven are revenue- $0.60 Owner Cut generating miles, with $0.40 costs of non-revenue $0.20 generating miles reflected $0.00 $0.00 in cost structure 5,000 10,000 15,000 20,000 35K Miles Miles Per Year

Sources: AAA, Credit Suisse Research Dan Levy | 212-325-4617 | [email protected] 54 But AV could sharply reduce rideshare cost per mile, making some rethink the case for personal vehicle ownership Keys to lower cost per mile are utilization, lower vehicle price

Key Takeaways: Potential Autonomous EV Rideshare Per Mile Operating Cost . Autonomous ridesharing reduces two Operating cost declines as utilization (% of miles occupied) increases and vehicle purchase key costs in current paradigm: price decreases 1. Eliminates the labor component 2. Addresses utilization of vehicles Assumptions (vehicles today on average are Annual Vehicle Miles Driven 65,000 65,000 65,000 65,000 65,000 highly underutilized assets, used % Miles Occupied 65.0% 70.0% 75.0% 80.0% 85.0% only ~5% of the time) Life of Vehicle (mi) 550,000 550,000 550,000 550,000 550,000 . Autonomous ridesharing cost per mile Vehicle Purchase Price $225,000 $150,000 $100,000 $50,000 $35,000 likely to be initially elevated – expensive Years in circulation 8 8 8 8 8 vehicle cost, lower utilization/higher depreciation. Yet as vehicle cost comes Fleet / Network Operator down and utilization increases, cost to Fuel - electricity $0.03 $0.03 $0.03 $0.03 $0.03 consumer should improve. Potentially Maintenance $0.11 $0.11 $0.11 $0.11 $0.11 could reach 67c steady state. Depreciation $0.41 $0.27 $0.18 $0.09 $0.06 . As charging and infrastructure Insurance $0.03 $0.03 $0.03 $0.03 $0.03 challenges solved, BEVs are likely to be License, registration, taxes $0.02 $0.02 $0.02 $0.02 $0.02 the vehicle of choice in an autonomous Finance $0.08 $0.05 $0.04 $0.02 $0.01 ridesharing environment given lower Total fleet operating cost $0.67 $0.50 $0.39 $0.29 $0.25 maintenance and fuel costs. Indicates there is some merit to the confluence Target EBIT margin for operator 0% 5% 10% 20% 25% of the AV and EV trends Price to consumer $2.56 $1.60 $1.05 $0.80 $0.66

Source: Credit Suisse Research, AAA, Company Data Dan Levy | 212-325-4617 | [email protected] 55 Dimensioning the disruption – 30% of US car parc at risk We could see urban households with 2+ vehicles reducing average vehicle ownership as autonomous ridesharing could serve as a substitute

. Ridesharing could fulfill most vehicle uses – low-mileage trips, Mix of Vehicle Trips by Trip Distance and trips to home/work or shopping/recreation 60% of trips 5mi ≤ % Vehicle Trips 17% – ~75% of trips are 10mi or less, with trip purpose primarily 16% for daily life – i.e. going to work/home, shopping, errands, 14% ~75% of trips are ≤ 10mi etc. Ridesharing could serve as a substitute to vehicle 10% ownership for these use cases. 8% 8% 6% . The segment of vehicle ownership we see most at risk of 5% 5% 5% 5% disruption are the secondary vehicles in urban households with 2+ vehicles – which represent ~35% of vehicles in the US vehicle fleet. Even taking into account increased need for Less 1 mile 2 miles 3 miles 4 miles 5 miles 6 - 10 11 - 15 16 - 20 21 - 30 31 miles than 0.5 miles miles miles miles or more robotaxis to replace the lost miles, it implies ~30% of the US miles vehicle fleet is most at risk Mix of Vehicles Per Household Decomposition of US Car Parc ~60% of households have 2+ vehicles 35% of vehicles most at risk to disruption 3% 6% 9% Segment at Most Risk

Urban: 1 15% # vehicles per household Vehicle Household 0 30 mn 2nd+ Vehicle 12% 1 Urban: 2+ 84 mn 2 Vehicle 35% 144 mn 3 34% Rural 60% Household 4 68 mn 1st Vehicle 28% 5+ 60 mn 25%

33%

Sources: National Household Travel Survey, Census American Community Dan Levy | 212-325-4617 | [email protected] 56 Survey, GOVERNING, Credit Suisse Research Challenge of balancing mid-term with long-term Concurrent with development of longer term AV solutions, OEMs must manage the more mid-term challenge of scaling penetration on Level 2 ADAS technology and vehicle connectivity + the initial roll-out of Level 2+/3 autopilot

. Penetration rates in Level 2 ADAS technologies currently inflecting. And Penetration Rates for Key ADAS Technologies with the product starting to be standardized across vehicles, and eventually a feature that consumers are no longer willing to pay a premium for, OEMs Lane Keep Adaptive Collision Collision Assist Cruise Control Warning Mitigation will be forced to find ways to find savings in other aspects of vehicle content 50% 47% 45% to make room for the increased safety content they must add. 45% 40% 35% . Vehicle connectivity also increasing. Yet little progress on timing of OTA 35% 32% 30% (over-the-air) technology. 30% 27% 25% 21% 22% . Level 2+ / Level 3 autopilot technology in nascent stage, but is 20% 18% commanding increased attention from automakers. 15% 12% 13% 12% 10% 10% 7% 6% . All of these challenges must be addressed concurrent with 5% 3% development of longer-term AV technology! 0%

Level 2+/3 Autopilot / Driver Assist Penetration as a % of new U.S. Light Vehicles Self Active Blindspot Lane Parking Pedestrian Alert Departure 100% 48% Level 2+/3 as % of new US sales 50% Detection Warning 90% 45% 39% 80% 40% 38% 70% 35% 31% 31% 60% 30% 28% 24% 50% 25% 19% 40% 20% 18% 15% 30% 15% 20% 2025 10% 7% 7% 2023 2030 5% 5% 4.3% 3% 10% 1.3% 21.2% 5% 0% 0%

Source: Company Data, Credit Suisse Research Source: Wards Intelligence

Dan Levy | 212-325-4617 | [email protected] 57 Technical challenges to AV – the bar is very high!

While the technical advances in the push toward autonomous driving have progressed quite significantly, the technical aspect of autonomous driving still has a long way to go before more advanced forms of autonomous driving are fully validated. Indeed, the tough part is not necessarily figuring out the first 95% or 98% of the problem. Rather, it’s the last 2% or 5% (i.e. the edge or corner cases) which are the most challenging, yet which must be addressed to enable autonomous driving.

Requirements to Achieve the “Minimum Viable Product” (MVP) for an AV The bar is very high!

AV-Specific Self-Driving Deep Simulation HD Mapping and Proprietary AV Redundant Hardware Software "Brain" Capability Routing Sensors Systems Automotive Safety Cyber-Security and Vehicle Connectivity AV-Specific Vehicle Core EV Platform and Durability Electrical and Data Collection Design Validation Architecture Customer Support & Operations Large Scale UX Interfaces (in car Total Cost Remote Assistance Infrastructure Production Readiness & app) Optimization (OnStar)

Commercially Ready MVP is ~10,000x More Difficult than an AV Demo

Source: GM

Source: GM, Credit Suisse Research Dan Levy | 212-325-4617 | [email protected] 58 Sensor configurations must be determined; LiDAR cost must decline • One of the central pillars required to enable Summary of Capabilities for Different Sensors autonomous driving is sensing, which provides Multiple sensor fusion is the secret sauce to get ultimate vision the vehicle with 360° awareness, understanding RADAR LiDAR CAMERA FUSION and contextualizing the vehicle’s environment and surroundings. There has been much progress on Object Detection each of the three primary sensors over the past Pedestrian Detection few years (radar, LiDAR, and camera). Weather Conditions Nevertheless, the challenge ahead as it relates Lighting Conditions to sensors will be to ascertain the right Dirt configuration, while also driving cost down – Velocity especially as it relates to LiDAR. Distance - Accuracy • While it is widely accepted that a combination of Distance -Range all three sensors is required, what is less clear is Data Density the proper configuration. Some are more ‘sensor Classification agnostic.’ Conversely, others have centered Source: Aptiv focus around a particular sensor – i.e. both Strengths by Sensor Type Mobileye and Tesla view vision as the core sensor, while Tesla CEO views LiDAR as a ‘fool’s errand.’ • For the majority of companies using LiDAR, the cost must come down dramatically enable more affordable vehicles. Reductions will likely be achieved through scale manufacturing, and also by spreading out R&D over a larger volume of units. That said, there is some opaqueness to the cost curve, making it somewhat unclear Source: Aptiv when the cost will come down.

Dan Levy | 212-325-4617 | [email protected] 59 Other technical challenges – mapping, increased capability required in data transfer, data management, and compute

. Mapping viewed by many as one of the pillars autonomous . Compute power must expand significantly to handle the driving – enables localization of the vehicle (where the vehicle is complexity associated with advanced forms of autonomous relative to particular landmarks). driving . Many players believe in necessity of constructing highly detailed . Capabilities in data transfer and data management / analytics 3D high-definition maps (HD maps), i.e. Waymo constructing must expand significantly to address the vast amount of data maps of surroundings with 10cm accuracy. Conversely, some generated in vehicles – especially from autonomous test vehicles take a less data-intense view (i.e. Mobileye constructing maps creating HD maps. Aptiv has noted that even on compressed using sparse 3D and dense 1D data). Tesla believes HD maps basis, an autonomous test vehicle could generate ~2 terabytes altogether unnecessary. of data per hour – by comparison, the average PC hard drive has 1 terabyte of hard disk capacity . Process of mapping will be lengthy, and potentially highly data intensive. Mapping focus also reinforces the notion that the first . Vehicle electrical architectures will need to evolve to handle the areas to see expanded autonomous functionality will be in cities, increased capabilities, and vehicle security will need to improve where a geofenced area (with confined boundaries) can be more significantly easily mapped Vehicle Demanding Significantly Greater Architecture Capabilities

Source: Aptiv

Source: Aptiv, Company Data, Credit Suisse Research Dan Levy | 212-325-4617 | [email protected] 60 Ever wonder how much an autonomous vehicle costs? The cost of autonomous vehicles must come down sharply to make autonomous ridesharing more feasible . One of the key drivers in reduced cost per mile in autonomous ridesharing for consumers will be the cost reduction of autonomous vehicles. While there is a line of sight for the early cost reductions in autonomous vehicles, especially as the industry moves from research vehicles to early scaled ridesharing vehicles, there will nevertheless be challenges – especially given the magnitude of cost reduction required. . Cost reduction will likely come from improved technology costs, scale, and modified vehicle capabilities. . The goal to reduce cost will be a constant challenge, as our estimated vehicle cost of ~$165k is far from an end state. Indeed, to reach the more attractive cost per mile figures for consumers, autonomous vehicle costs will need to be reduced to sub $50k, which will require commoditization of much of the technology

Estimated Autonomous Vehicle Cost Vehicle cost should come down materially from the research cars currently testing / creating HD maps, to the vehicles used in scaled ridesharing ops Cost - non-scaled Cost - early scaled research car ridesharing car Comments re: cost reduction LiDAR $100,000 $35,000 LiDAR cost reduction GPS System / IMU 65,000 18,000 Change from tactical grade to commercial grade Research car requires more advanced radar; ridesharing car could see cost Radar 10,000 2,000 reduction in radar Cameras 4,000 2,000 Research car may require 100 TB harddrive; assume ridesharing car shares data Data Storage 30,000 2,000 storage infrastructure with other vehicles Research car may require advanced compute, i.e. Pegasus; ridesharing car could Compute 50,000 15,000 have smaller computer, embedded GPU Need separate by-wire interface for research car; ridesharing car designed to Vehicle Controls 80,000 30,000 support autonomous vehicle controls Base vehicle cost 61,000 61,000 Total $400,000 $165,000

Source: Credit Suisse estimates, Company Date 61 Note: IMU = inertial measurement unit Dan Levy | 212-325-4617 | [email protected] Establishing AV regulatory standards may be a lengthy process Roles need to be established between national, state and local levels; road sign standardization shows how long it may take to develop nat’l standards AV Regulation States with Autonomous Vehicle Enacted . Regulation also poses a challenge to uptake of autonomous driving. Legislation and Executive Orders . Autonomous vehicle testing oversight currently is primarily done on the state level. Yet over time a national set of standards will need to be established to create an efficient system throughout the country. It may take decades before roles are clarified and national standards are established.

As an analog, consider the history of road signs . Standardization of road signs in the US was a process that took over half a century, perhaps providing an indication that standardization of regulation around the more complex task of autonomous driving could be a lengthy process.

Progression of Stop Signs in the U.S.

The progression and standardization of stop signs was a lengthy process Enacted Legislature Executive Order Both None Source: National Conference of State Legislatures

Source: Emedco

Dan Levy | 212-325-4617 | [email protected] 62 The diverse and complex web of the AV landscape... …creates a layer of uncertainty for traditional automotive incumbents

Core Auto Self-Driving Startups Network / Fleet / Mobility OEMs Tier 1 Suppliers Start-Up OEMs Self-Drive Systems Simulation Network Operators Public Transport / Mobility BAIC Aisin Seiki Byton AImotive Applied Intuition Didi EasyMile BMW Aptiv / nuTonomy Lucid Apex.AI Cognata Grab May Mobility BYD Bosch NIO Aurora / Blackmore Mighty Ai Lyft Navya Changan Continental / Argus Rivian AutonomouStuff Parallel Domain Uber Transdev Daimler Denso WM Motor Comma.ai RightHook FCA Desay SV (China) Xpeng Cortica Platform Support Teleoperations Ford / Argo HASCO drive.ai Autonomous Delivery Ridecell Ottopia Geely-Volvo / Zenuity HELLA Trucks HoloMatic (China) AutoX rideOS Phantom Auto GM / Cruise Hyundai Mobis AB Volvo Momenta Eliport Scotty Labs Great Wall Lear Hino Oxbotica Marble Fleet Management / Services Honda Magna Isuzu Pony.ai (China) Nuro Autofleet Peer-to-Peer Carshare Hyundai-Kia Schaeffler Iveco Roadstar.ai (China) Starship Avis Budget Getaround / Drivy JLR Valeo Mitsubishi Fuso SenseTime (China) Udelv Enterprise Snappcar PSA Veoneer / Zenuity PACCAR Torc Robotics Fleetonomy Turo Renault-Nissan Visteon Voyage Autonomous Truck Hertz SAIC ZF / Wabco Zoox Embark Tesla Ike Toyota Data Labelling Pronto.ai VW Deepen Starsky Robotics Scale TuSimple (China) Other Established Mapping / Data Sensors Data Management / China Large Tech Players Mapping LiDAR Radar Other sensor work / fusion Connectivity / Transfer Alibaba Amazon Aisan Technologies (Japan) Autotalks Aeva Arbe Robotics Aeva Baidu Apple AutoNavi (China) INRIX Great Start Industrial (China) ARI (Augmented Radar Imaging) DeepScale Huawei Google / Waymo / Waze Carmera NAUTO Hamamatsu Photonics (Japan) Autoroad (Chinese) IonTerra JD.com LG Civil Maps Nexar Hesai Tech (China) Echodyne VayaVision Tencent Microsoft DeepMap Otonomo ibeo Ghostwave Vehicle Software Support / Samsung Dynamic Map Platform / Ushr Valens Innoviz Lunewave System Validation Semiconductors Yandex HERE Innovusion Metawave Aurora Labs Infineon lvl5 Security Leddartech Nanoradar (Chinese) Foretellix LeiShen Intelligent System Intel / Mobileye Other Mapbox C2A Oculii (China) NVIDIA Piaggio NavInfo Karamba Luminar Steradian Camera NXP TTTech PATEO (China) Upstream Oryx Uhnder O-Film Tech (China) Renesas Electronics (Japan) Spatial Logic Ouster Vayyar Sunny Optical (China) Swift Navigation Quanergy WaveSense Zenrin Robosense (China) Zendar Vision TetraVue AdaSky TriLumina Broadmann17 Velodyne Deep Vision FLIR Note – not an exhaustive list of all involved industry participants; companies classified based on primary Light function, but may fulfill multiple roles in the landscape (i.e. GM / Cruise creating the vehicle, self-drive system, Prophesee LiDAR, and network, amongst other things)

Source: Credit Suisse Research, Company Data Dan Levy | 212-325-4617 | [email protected] 63 Our Dilemma on Auto Stocks

Dan Levy | 212-325-4617 | [email protected] 64 Our dilemma on auto stocks Two clocks framework implies long-term challenges to owning auto stocks; but stocks extremely inexpensive, and 2H data points may be better

The case for auto stocks The case against auto stocks . Very inexpensive valuation vs. historicals and . AV/EV will require significant investment, relative to market and will serve as drag on margins; we are . 2H data points potentially better amid only in the first inning of a multi-decade easing comps – 2H global light vehicle transition production estimated flat y/y vs. 1H -6%. . Transition will be long, with uncertainty on . End markets and financial performance still ultimate end state strong and healthy on absolute basis . Challenge in balancing this alongside end . Robust balance sheets with low leverage markets that are forecast to be flat/down, (average net debt/EBITDA of ~1.7x) with risk of volatility and risk to downside . Valuation cheap for a reason; if the stocks couldn’t re-rate by now, why will they re-rate going forward?

Over the next several years we expect continued challenges to auto stocks. But we nevertheless see upside in certain names over the next 6-12 mo.

Source: Credit Suisse Research, FactSet Dan Levy | 212-325-4617 | [email protected] 65 Any way you cut it, auto stocks looks cheap

OEM Historical Valuation: P/E-NTM Supplier Historical Valuation: P/E-NTM

20x 20x 18x 18x 16x 16x 14x 14x 12x 12x 10x 10x 8x 8x 6x 6x 4x 4x 2x 2x 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 P/E-NTM; 5.7x Avg.; 9.1x +1 Std.; 13.0x -1 Std.; 5.1x P/E-NTM; 8.1x Avg.; 12.5x +1 Std.; 15.5x -1 Std.; 9.4x

OEM Historical Valuation: P/E-NTM Relative to S&P500 Supplier Historical Valuation: P/E-NTM Relative to S&P500

1.4x 1.4x

1.2x 1.2x

1.0x 1.0x

0.8x 0.8x

0.6x 0.6x

0.4x 0.4x

0.2x 0.2x

0.0x 0.0x 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 P/E-NTM; 0.34x Avg.; 0.58x +1 Std.; 0.82x -1 Std.; 0.33x P/E-NTM; 0.48x Avg.; 0.82x +1 Std.; 1.10x -1 Std.; 0.55x

Note: OEMs include F, FCA, & GM; Suppliers include ADNT, APTV, AXL, BWA, DAN, DLPH, LEA, MGA, ALV, GTX, GNTX, TEN, ST, VC; P/E-NTM is banded at 0 & 30 for all calculations; GM & F adjusted for finco net debt

Source: FactSet Dan Levy | 212-325-4617 | [email protected] 66 Expectations Relative to Industrials: Relative to U.S. Industrials, Auto Manufacturers are the second most attractive industry based on market expectations; Auto Parts & Equipment are also relatively attractive

Lower expectations Higher expectations

10-yr CFROI Median LFY CFROI CFROI Forecast Market Implied CFROI 25

20

15

10 CFROI CFROI %

5

0

Airlines

Trucking

Railroads

Equipment

Industrial

Automobile

Auto Auto Parts&

Trucks

Engineering

Services

Manufacturers

Machinery

Construction &

Conglomerates

Services

Construction

Distributors

Environmental&

BuildingProducts

&Equipment

FacilitiesServices

DiversifiedSupport

Agricultural& Farm

Machinery& Heavy

Industrial Machinery

HumanResource &

EmploymentServices

TradingCompanies &

Aerospace& Defense

AirFreight Logistics &

ElectricalComponents Research& Consulting 10-yr Median Asset Growth LFY Asset Growth Forecast Asset Growth Market Implied Asset Growth 15

10

5

0 Asset Growth Asset Growth (%)

-5

Airlines

Trucking

Railroads

Industrial

Automobile

Engineering

Services

Manufacturers

Machinery

Construction &

Conglomerates

Services

Distributors

Environmental&

BuildingProducts

&Equipment

FacilitiesServices

DiversifiedSupport

Agricultural& Farm

&Trucks Heavy

Industrial Machinery

HumanResource &

Employment Services

TradingCompanies &

Aerospace& Defense

AirFreight Logistics &

ElectricalComponents

Research& Consulting

Construction Construction Machinery Auto Auto Parts& Equipment

Sourced from CS HOLT®. Charts sorted by CFROI® forecasts minus market implied CFROI. Automobile Dan Levy Manufacturers group excludes WGO, THO and HOG. All companies included are U.S Domiciled; MC > $1B. | 212-325-4617 | [email protected] 67 Expectations Relative to Consumer Discretionary: When compared to U.S. Consumer Discretionary peers, the picture is nearly identical, with Auto Manufacturers being the second cheapest group and Auto Parts sitting in the top third

Lower expectations Higher expectations

10-yr CFROI Median LFY CFROI CFROI Forecast Market Implied CFROI 20

15

10 CFROI CFROI % 5

0

Footwear

Distributors

Equipment

Restaurants

Retail

Specialties

Automobile

Auto Auto Parts&

Homebuilding

ApparelRetail

Stores

Manufacturers

Computer&

Housewares&

CruiseLines

Services

SpecialtyStores

MarketingRetail

Internet& Direct

LeisureFacilities

LeisureProducts

Electronics Retail

AutomotiveRetail

Hotels, Resorts&

HomeFurnishings

&Luxury Goods

Casinos& Gaming

DepartmentStores Education Services

HomeImprovement

Apparel, Accessories

General Merchandise

ConsumerElectronics

SpecializedConsumer

HomefurnishingRetail HouseholdAppliances

10-yr Median Asset Growth LFY Asset Growth Forecast Asset Growth Market Implied Asset Growth

15

10

5

0 Asset Growth Asset Growth (%)

-5

Footwear

Distributors

Restaurants

Retail

Specialties

Automobile

Homebuilding

ApparelRetail

Stores

Manufacturers

Retail

Housewares&

Lines

Services

SpecialtyStores

MarketingRetail

Internet& Direct

LeisureFacilities

LeisureProducts

AutomotiveRetail

HomeFurnishings

Luxury Goods

Casinos& Gaming

DepartmentStores

Education Services

HomeImprovement

General Merchandise

ConsumerElectronics

SpecializedConsumer

HomefurnishingRetail

HouseholdAppliances

Apparel, Accessories&

Computer& Electronics

Auto Auto Parts& Equipment Hotels, ResortsCruise &

Sourced from CS HOLT. Charts sorted by CFROI forecasts minus market implied CFROI. Automobiles Manufacturers group excludes WGO, THO and HOG. All companies Dan Levy | 212-325-4617 | [email protected] included are U.S Domiciled; MC > $1B. 68 Why are auto stocks so cheap? Market Concern Our Take Cycle fears  We see EPS risk to the downside, yet we are . With US auto sales having peaked and facing downward not modelling in the more draconian EPS trajectory (whether more gradual, or more sharp), and downsides which may be currently priced in. I.e. amid volatility / risks in other regions, investors are even if GM earnings were cut in half (which concerned that the cycle turn could significantly harm would require a solid industry decline), the earnings. implied PE multiple off today’s price would still be only 11x EPS. Legacy / concerns over a structurally tough business  Auto companies are much better today than . The experience of 2008, and the bankruptcies / industry they were pre crisis – stronger balance sheets, downturn associated with it, still makes some investors lower cost structures, more flexibility, better see the automotive industry as a bad business – especially focus on profitable business. for the automakers. Hence the view by some that a more permanent re-rating is only possible after auto stocks come out of a downturn. Longer term concern over potential ‘dinosaur-ization’  While there is uncertainty ahead for the . Some investors may be discounting auto stocks over long- automotive incumbents, we believe the term terminal value concerns – that even if autos make it capability of the incumbents to serve as the through the cycle, there will eventually come a time when disrupters is overly discounted. the legacy auto companies are disrupted in one form or another from new emerging players, such as Google/Waymo, Apple, and Tesla. Auto stocks don’t deserve to be as cheap as they are

Dan Levy | 212-325-4617 | [email protected] 69 Yet, direction of end mkts likely tells us direction of auto stocks… …and if end markets are trending down (even if modestly), auto stocks may see further pressure U.S. LV SAAR vs U.S. Autos Index Price US auto stocks have largely tracked US SAAR post crisis. And with US SAAR expected to erode over coming years, may imply risk to auto stocks U.S. Autos Index Price ($) LV U.S. SAAR (mn units) 800 SAAR peaked in the back half of 2015 20

700 18

600 16

500 14

400 12

300 10

200 8 01/10 07/10 01/11 07/11 01/12 07/12 01/13 07/13 01/14 07/14 01/15 07/15 01/16 07/16 01/17 07/17 01/18 07/18 01/19 U.S. Autos Index Price LV SAAR 2019 IHS Global Production Revisions vs U.S. Autos Index Price Pressure on auto stocks last year was in large part driven by negative revisions to global light vehicle production estimates. Downside risk to production over coming years implies potential downside risk for auto stocks. U.S. Autos Index Price ($) 2019 IHS Global LV Production Estimate (mn units) 800 102 750 100 700 650 98 600 96 550 94 500 450 92 400 90

U.S. Autos Index Price 2019 IHS Global LV Production Estimates

Sources: IHS Automotive, BEA, Credit Suisse Research Note: U.S. Autos Index includes – F, FCA, GM, AXL, ADNT, APTV, ALV, BWA, DAN, DLPH, Dan Levy | 212-325-4617 | [email protected] 70 LEA, GTX, MGA, VNE, VC, TEN Auto stocks trade on EPS revisions, and risk is to downside Margins have peaked with negative trajectory; end market volumes with risk to downside U.S. Autos Index Price vs 2019 EPS Revisions Stocks have traded down on negative EPS revisions in the back half . Auto stocks tend to track EPS revisions. of 18 and beginning of 19 Amid risk to margins and industry volumes, U.S. Autos Index Price ($) U.S. Autos Index 2019 EPS ($) EPS revisions may see risk to downside, 800 95 750 boding poorly for auto stocks 90 700 650 85 600 . After a multi-year stretch of margin 550 80 500 expansion coinciding with the improvement 75 450 of the cycle, industry margins largely 400 70

peaked in 2016/17. And in 2018 margins

12/16 02/18 04/19 02/16 04/16 06/16 08/16 10/16 02/17 04/17 06/17 08/17 10/17 12/17 04/18 06/18 08/18 10/18 12/18 02/19 06/19 12/15 compressed for nearly all companies in our U.S. Autos Index Price U.S. Autos Index 2019 Consensus EPS coverage (albeit with varied magnitude), U.S. Autos EBIT Margin Margins peaked in 2017 driven by a weaker environment for auto

10% sales/production, as well as headwinds U.S. Autos Adj. EBIT Margin from tariffs/commodities. 9.0% 8.8% 9% 8.3% 8.2% 8.1% . While some will see improvement this year 8% 7.6% 7.4% and next related to self-help (i.e. Ford, 7.2% 7.2% 7.3% margins peaked in 2017 7% ADNT), generally more macro 6.4% pressure/volatility + increased spend on 6% secular = further risk of margin pressure 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019E 2020E Note: U.S. Autos EBIT Margin - Credit Suisse Estimates for ADNT, APTV, AXL, BWA, DAN, DLPH, LEA, MGA, Ford, GM – Consensus (FactSet) for ALV, FCA, TEN, VC Sources: FactSet, Credit Suisse Research, Company Data Note: U.S. Autos Index includes – F, FCA, GM, AXL, ADNT, APTV, ALV, BWA, DAN, DLPH, Dan Levy | 212-325-4617 | [email protected] 71 LEA, GTX, MGA, VNE, VC, TEN OEMs vs suppliers – why do OEMs trade at a discount?

U.S. Autos P/E-NTM U.S. Autos 2018 EBIT Margins OEMs Suppliers OEM Avg. Supp. Avg. OEM EBIT Margin Supp. EBIT Margin OEM Avg. Supp. Avg. 16x 30% 14x 25% 12x 10x 20% 8x 8.1x 15% 6x 5.7x 11.6% 10% 4x 6.2% 2x 5% 0x 0%

OEMs Suppliers . More heavily levered to North America (i.e. substantially all . Relatively less mix from NA, geographically more diverse; profit at Ford/GM/FCA related to North America) – with earnings stream generally seen as more sustainability US the region that is most seen as ‘peak’ (vs. Europe or . Fewer drags on profit China), investors incrementally concerned; hence, current earnings stream seen as less sustainable than suppliers . Better opportunity to focus on profitable niches – supplier product focuses generally more narrow over last 10 yrs, . Quality of business seen as poor by some investors – focusing on product areas where strong concentrated OEMs still exposed to parts of business that are losing $ market positions can be held with better pricing power (i.e. (i.e. South America); higher structural costs vs. suppliers BorgWarner with 1/3 of market in turbochargers) with relatively less flexibility; car-making in general seen as overly-competitive and fragmented with little pricing power . Better opportunity for growth – content growth (i.e. active safety) indicates potential for continued top and bottom line . Lower margins than suppliers growth despite tougher market environment . More limited pockets of growth . Some see suppliers as facing relatively less risk of long- . Some see OEMs as facing greater risk of disruption – term disruption vs. OEMs whether from electrification or autonomous driving

Sources: Credit Suisse Research, FactSet Dan Levy | 212-325-4617 | [email protected] 72 A scorecard for evaluating auto stocks Differing narratives among auto stocks

Opportunity from Potential for self-help / Potential for above-mkt execution improvement / Idiosyncratic risks Importance of very LT Valuation rev growth direction of margins (execution, BS) secular to narrative Rating Ford ● ○ ● ◔ ◕ O GM ● ○ ◐ ◕ ● O APTV ◔ ● ◐ ● ● O AXL ● ◔ ◕ ◐ ◐ O DAN ● ◐ ◐ ◕ ◐ O BWA ◐ ● ◔ ◕ ● O DLPH ● ◐ ◕ ◐ ◕ N LEA ◕ ◕ ◔ ● ◕ N MGA ◕ ◐ ◐ ● ◕ N ADNT ◕ ○ ● ◔ ○ N VNE ○ ● ● ○ ● N TSLA ○ ● ● ○ ● U Most full means most opportunity; least full Most full means most Most full means least Most full means most Assume valuation Notes means least opportunity opportunity; least full risk; least full means important; least full relative to others (or potentially risk of means least opportunity most risk means least important negative growth)

Source: Credit Suisse Research Dan Levy | 212-325-4617 | [email protected] 73 Company Tear Sheets

Dan Levy | 212-325-4617 | [email protected] 74 CS Rating = NEUTRAL CS Target Price = $24 Adient plc (ADNT) Current Price = $22

. Self-help story – EBITDA down ~50% this year vs. 2017 amid operational missteps ADNT Free Cash Flow . Path ahead for ADNT rooted in ‘back to basics,’ with the potential outcome an operationally stronger company, while also smaller and more efficient; we forecast 305 265 EBITDA recovering to $1.2bn by 2022, up from a trough level of ~$800mn in FY’19 . Yet recovery will be long, and we take a more conservative view on magnitude: 143 139 . Lengthy recovery, with improvement through 2022 . We don’t expect margins to reach peer levels given execution and cycle risks . ADNT is likely to be smaller, with growth declines driven by downsizing of challenged business, and also as the growth focus may be reduced given (100) operational focus (223) . Given 50% of net income from China, we see limited upside on China income given our no-growth China industry outlook 2018 2019E 2020E 2021E 2022E 2023E

CS Estimates vs. Consensus vs. Guidance 2 Year P/E-NTM

2018 2019E 2020E 2Yr Avg; 6.41x +1 Stdev; 7.67x -1 Stdev; 5.14x $mn, except per share Guide 9x amounts Actual (mdpt) CS Est. Cons. CS Est. Cons. Revenue 17,439 16,600 16,549 16,667 16,049 16,716 8x 7.7x 7.9x Y/Y % Growth 7.6% -4.8% -5.1% -4.4% -3.0% 0.3% 7x Organic Growth -0.9% -2.2% -1.7% -2.7% 1.0% Adj. EBITDA 1,196 H2 > H1 799 795 992 949 6x Adj. EBTDA Margin 6.9% 4.8% 4.8% 6.2% 5.7% Y/Y Margin Delta -304 bps -203 bps -209 bps 135 bps 91 bps 5x 5.1x Adj. EBIT 766 498 394 674 569 Adj. EBIT Margin 4.4% 3.0% 2.4% 4.2% 3.4% 4x Adj. EPS $6.08 $1.72 $1.59 $2.94 $3.20 3x Y/Y % Growth -34.8% -71.8% -73.9% 71.3% 102.1% Free Cash Flow 143 (223) (226) (100) 14 2x FCF Margin 0.8% -1.3% -1.4% -0.6% 0.1% Jun-17 Sep-17 Dec-17 Mar-18 Jun-18 Sep-18 Dec-18 Mar-19 Jun-19

Sources: FactSet, Company Data, Credit Suisse estimates Dan Levy | 212-325-4617 | [email protected] 75 CS Rating = OUTPERFORM CS Target Price = $15 American Axle & Manufacturing Holdings, inc. (AXL) Current Price = $12

Challenged valuation reflects poor sentiment on AXL FCF Yield 2H19 EBITDA Growth stock, yet we see good reasons to be positive on AXL AXL is leading the pack with >30% AXL is expected to have a much stock FY’20E FCF yield stronger recovery than peers 2019 2020 Industry AXL -20% 0% 20% 40% 30% . Positive inflection in data points expected in 26% 25% 2H. AXL offers best earnings delta of any name in AXL 25% our coverage. We expect AXL to operational DAN 20% improvements (overcoming self-help issues from LEA 2H’18) and strong volume on key programs 15% 12% DLPH 10% 9% . Solid FCF generation, with AXL offering the MGA most inexpensive FCF yield by a wide margin BWA 5%

APTV 0% ADNT Sequential: Y/Y: 2H19 vs 1H19 2H19 vs 2H18

CS Estimates vs. Consensus vs. Guidance 5 Year EV/EBITDA-NTM

2018 2019E 2020E 5Yr Avg; 4.4x +1 Stdev; 5.1x -1 Stdev; 3.7x $mn, except per share Guide 7x amounts Actual (mdpt) CS Est. Cons. CS Est. Cons. Revenue 7,270 7,350 7,263 7,265 7,216 7,177 6x 5.1x Y/Y % Growth 16.0% 1.1% -0.1% -0.1% -0.6% -1.2% 5x Organic Growth 3.1% 0.9% -0.6% Adj. EBITDA 1,182 1,225 1,172 1,179 1,164 1,176 4x 4.1x Y/Y EBITA Growth 7.5% 3.6% -0.8% -0.2% -0.7% -0.3% 3.7x Adj. EBITDA Margin 16.3% 16.7% 16.1% 16.2% 16.1% 16.4% 3x Y/Y Margin Delta -129 bps 41 bps -12 bps -3 bps -1 bps 15 bps Adj. EBIT 655 616 611 685 611 2x Adj. EBIT Margin 9.0% 8.5% 8.4% 9.5% 8.5% Adj. EPS $3.29 $2.71 $2.79 $3.16 $2.83 1x Y/Y % Growth -12.2% -17.4% -15.2% 16.6% 1.5% Adj. FCF 317 375 349 336 397 451 Adj. FCF Margin 4.4% 5.1% 4.8% 4.6% 5.5% 6.3%

Sources: FactSet, Company Data, Credit Suisse estimates Dan Levy | 212-325-4617 | [email protected] 76 CS Rating = OUTPERFORM CS Target Price = $90 Aptiv PLC (APTV) Current Price = $78

. With APTV guiding to an implied mid/high single digit organic rev CAGR through APTV Sales Mix 2022, APTV offers one of the best growth outlooks within the space. Asia CV & . While products lines such as Active Safety and High Voltage Electrification are SUV/Truck Industrial modest (combined north of ~10% of APTV rev), the robust growth rates ahead (25% 11% 14% / 40%), combined with solid growth in the more mature product lines (i.e. Europe SUV/Truck Americas Infotainment), will help to drive solid total co. growth. 12% Pass Car 7% . New products areas such as Mobility and Smart Vehicle Architecture support the case for growth through the next decade.

. Strong positioning in the ‘two clocks’: Europe Pass Car . ‘Near’ - solid growth outlook amid industry volatility supports case for profit 16% trajectory Americas . ‘Far’ – supplier best positioned in a world of autonomous driving, addressing SUV/Truck 26% Asia Pass Car both the software and vehicle architecture required to support autonomous 15% driving

CS Estimates vs. Consensus vs. Guidance 5 Year EV/EBITDA-NTM

2018 2019E 2020E 5Yr Avg; 9.1x +1 Stdev; 10.4x -1 Stdev; 7.8x $mn, except per share Guidance 16x amounts Actual (mdpt) CS Est. Cons. CS Est. Cons. Revenue 14,435 14,625 14,774 14,747 15,424 15,698 14x Y/Y % Growth 12.0% 1.3% 2.3% 2.2% 4.4% 6.5% 12x Organic Growth 8.2% 2.9% 4.7% 10.4x Adj. EBITDA 2,427 2395 2,395 2,363 2,520 2,592 10x 10.0x EBITDA Margin 16.8% 16.4% 16.2% 16.0% 16.3% 16.5% Adj. EBIT 1,751 1670 1,671 1,666 1,783 1,861 8x EBIT Margin 12.1% 11.4% 11.3% 11.3% 11.6% 11.9% 7.8x 6x Y/Y Delta -24 bp -71 bp -82 bp -83 bp 25 bp 55 bp Adj. EPS $5.26 $5.00 $5.02 $5.03 $5.51 $5.73 4x Y/Y % Growth 13.5% -5.0% -4.7% -4.5% 9.8% 14.1% FCF 782 850 838 818 1,128 1,150 FCF Margin 5.4% 5.8% 5.7% 5.5% 7.3% 7.3%

Sources: FactSet, Company Data, Credit Suisse estimates Dan Levy | 212-325-4617 | [email protected] 77 CS Rating = OUTPERFORM CS Target Price = $50 BorgWarner Inc. (BWA) Current Price = $42

. BWA narrative defined by its prospects for growth. We are positive on Backlog Contribution to Revenue Growth BWA, as we believe it offers an attractive growth story in the near/mid-term, (i.e. the backlog alone lead to 7% revenue growth in FY’18) alongside a solid narrative in the long-term shift to a world of electrification Backlog ($mn) Contribution to Revenue Growth

1,200 9.2% 10% . BWA offers one of the best growth stories within our supplier 8.7% coverage, with mid-single digit organic growth over the next several years, 9% 1,000 especially crucial amid a no-growth industry environment. Growth driven by 7.0% 7.2% 8% 7% robust backlog, supporting solid outgrowth vs. mkt. 800 5.8% 5.4% 6% 4.6% . The shift to EVs is existential to BWA, and we see uncertainty for suppliers 600 5% in an EV world. Yet opportunity for BWA given importance of hybrids, and 969 4% 400 771 825 800 as BWA offers one of the most complete portfolios in EV components vs. 700 3% 560 600 other suppliers. 2% 200 1% 0 0% 2017 2018 2019E 2020E 2021E 2022E 2023E

CS Estimates vs. Consensus vs. Guidance 5 Year P/E-NTM

2018 2019E 2020E 5Yr Avg; 12.0x +1 Stdev; 14.6x -1 Stdev; 9.3x $mn, except per share Guide: 21x amounts Actual (mdpt) CS Est. Cons. CS Est. Cons. 19x Revenue 10,530 10,137 10,203 10,306 10,650 10,840 17x Y/Y % Growth 7.5% -3.7% -3.1% -2.1% 4.4% 6.2% 14.6x Organic Growth 4.8% -0.25% 0.8% 1.7% 5.1% 7.1% 15x Adj. EBITDA 1,728 1,649 1,669 1,738 1,779 13x Adj. EBITDA Margin 16.4% 16.2% 16.2% 16.3% 16.4% 11x Adj. EBIT 1,297 1,225 1,215 1,241 1,251 1,320 9x 9.5x Adj. EBIT Margin 12.3% 12.05% 11.9% 12.0% 11.7% 12.2% 9.3x Y/Y Margin Delta -11 bps -26 bps -41 bps -27 bps -16 bps 14 bps 7x Adj. EPS $4.49 $4.18 $4.11 $4.21 $4.35 $4.59 5x Y/Y % Growth 15.5% -6.9% -8.4% -6.2% 5.8% 9.1% Free Cash Flow 580 575 585 570 757 639 FCF Margin 5.5% 5.7% 5.7% 5.5% 7.1% 5.9%

Sources: FactSet, Company Data, Credit Suisse estimates Dan Levy | 212-325-4617 | [email protected] 78 CS Rating = OUTPERFORM CS Target Price = $22 Dana Incorporated (DAN) Current Price = $18

Reasons to like DAN: Dana End Market Mix, 2019E . Diverse end market exposure, with exposure to the right Aftermarket platforms/segments 12% . Resilient business model – diverse revenue base + track record of Off-Highway steady performance in the face of choppy end markets, implies support 26% for continued FCF generation Light Vehicle . M&A has helped, adding another source of growth, supporting margins, 48% and further diversifying revenue (both by product and geographically) . Narrative on electrification has improved – capabilities have expanded, end markets likely to electrify later than core automotive Commercial market, and there is potentially less risk of insourcing by DAN’s Vehicle (on- highway) customers in some of its end markets. 14%

CS Estimates vs. Consensus vs. Guidance 5 Year EV/EBITDA-NTM

2018 2019E 2020E 5Yr Avg; 5.0x +1 Stdev; 5.9x -1 Stdev; 4.2x $mn, except per share Memo: Guidance CS Est. Cons. Guidance CS Est. Cons. 8x Sales 8,143 ~9,150 9,105 9,035 ~9,300 9,143 9,189 Y/Y% Growth 13.0% 12.4% 11.8% 11.0% 1.6% 0.4% 1.7% 7x Organic Sales Growth 11.1% 3.0% 3.3% ~Flat -0.8% 5.9x 6x Adj. EBITDA 957 ~1,125 1,116 1,108 ~1,180 1,147 1,150 Adj. EBITDA Margin 11.8% ~12.3% 12.3% 12.3% ~12.8% 12.5% 12.5% 5x Y/Y Delta 17bp 50bp 51bp 51bp 50bp 29bp 25bp 4.3x 4x Adj. EBIT 658 749 766 738 796 4.2x Adj. EBIT Margin 8.1% 8.2% 8.5% 8.1% 8.7% 3x Adj. EPS $2.97 ~$3.20 $3.29 $3.31 ~$3.40 $3.50 $3.49 Y/Y% Growth 17.7% 7.7% 10.7% 11.4% 6.3% 6.2% 5.4% 2x Free Cash Flow 243 ~275 270 278 ~465 487 484 FCF Margin 3.0% ~3.0% 3.0% 3.1% ~5% 5.3% 5.3%

Sources: FactSet, Company Data, Credit Suisse estimates Dan Levy | 212-325-4617 | [email protected] 79 CS Rating = NEUTRAL CS Target Price = $21 Delphi Technologies Plc (DLPH) Current Price = $18

. DLPH narrative centers around balancing growth prospects with operational DLPH Sales Mix by End Market improvement. . Aftermarket Upside case for DLPH is clear – solid path to operational recovery, long-term 18% growth prospects. With margin improvement expected in 2H, may see 2H trade emerge. . Yet we take a Neutral stance on the stock - it will take time for margin recovery to fully materialize, and we expect slightly negative top-line growth in

’20. Light . The shift to EVs is existential to DLPH, and we see uncertainty for suppliers Commercial Vehicles Vehicles 59% in an EV world. Yet potential opportunity for DLPH given: long tail of ICE, 23% opportunity in hybrids, track record of tech leadership.

CS Estimates vs. Consensus vs. Guidance EV/EBITDA-NTM

2018 2019E 2020E Avg.; 5.5x +1 Stdev; 6.7x -1 Stdev; 4.4x $mn, except per share Guide: 9x items Actual (mdpt) CS Est. Cons. CS Est. Cons. 8x Revenue 4,858 4,700 4,558 4,691 4,482 4,818 Y/Y % Growth 0.2% -3% -6% -3% -2% 3% 7x 6.7x Organic Growth -0.2% -2.0% -3.0% -1.5% -1.3% 4.6% 6x Adj. EBITDA 749 644 640 704 705 Adj. EBITDA Margin 15.4% 14.1% 13.6% 15.7% 14.6% 5x Adj. EBIT 548 423 416 423 454 481 4.5x 4x 4.4x Adj. EBIT Margin 11.3% ~9.0% 9.1% 9.0% 10.1% 10.0% Y/Y Delta -64 bp -228 bp -214 bp -227 bp 100 bp 98 bp 3x Adj. EPS $4.38 $3.10 $3.12 $3.14 $3.48 $3.71 2x Y/Y % Growth -2.2% -29.2% -28.7% -28.2% 11.5% 18.0% FCF 154 15 (2) 12 196 178 FCF Margin 3.2% 0.3% 0.0% 0.3% 4.4% 3.7%

Sources: FactSet, Company Data, Credit Suisse estimates Dan Levy | 212-325-4617 | [email protected] 80 CS Rating = OUTPERFORM CS Target Price = $13 Ford Motor Company (F) Current Price = $10 Textbook case for the “Two Clocks.” . Undergoing concurrent redesign of 2019E Wholesales by Region business profitability alongside longer term reimagining of business. Yet upside 2019E Wholesales SA MEA NA: Cars ahead for stock amid early signs of improvement, with more to come. 115 000's units & % Mix 326 388 2% 7% . It will not be easy, and we do not see Ford hitting its LT targets. We are 6% only in the early innings of redesign, and we don’t see Ford hitting its 8% LT NA: Trucks ex margin target. F-Series EU 1,305 1,387 24% . Yet solid recovery ahead, with EBIT to sharply improve from trough 2018 25% NA level, as Ford is showing early signs of progress from its initiatives. Ford remains 2,769 strong in outperforming businesses, and has path to recovery in 51%

underperforming businesses. APAC 858 . Ford’s standing in autonomous driving (AV) and vehicle electrification 16% Asia ex China (EV) is underappreciated. In AV Ford’s efforts have seen more validation of 361 7% China NA: F-Series late, and in EV Ford has shown significant progress in a multi-pronged strategy. 497 1,076 9% 20%

CS Estimates vs. Consensus vs. Guidance 5 Year P/E-NTM

2018 2019E 2020E 5Yr Avg; 7.6x +1 Stdev; 8.8x -1 Stdev; 6.5x $mn, except per share amounts Actual Guide CS Est. Cons. CS Est. Cons. 12x Revenue 160,338 153,223 157,553 146,277 156,336 Y/Y % Growth 2.3% Improvement Y/Y -4.4% -1.7% -4.5% -0.8% 11x EBIT 7,002 8,922 9,629 10x Total Co. EBIT Margin 4.4% Improvement Y/Y 5.8% 6.6% Y/Y Delta -178bps 146bps 76bps 8.8x 9x EPS $1.30 $1.53 $1.39 $1.65 $1.44 Y/Y % Growth -26.8% 17.9% 7.3% 7.9% 3.6% 8x Revenue 148,320 140,836 133,032 Y/Y % Growth 1.8% -5.0% -5.5% 7x 7.0x EBIT 4,375 6,317 7,169 Automotive EBIT Margin 2.9% 4.5% 5.4% 6x 6.5x (incl. Corp / Y/Y Delta -208bps 154bps 90bps Mobility) 5x Adj. FCF 2,781 4,567 5,370 Y/Y % Growth -33.5% 64.2% 17.6% Adj. FCF Conversion 40% Improvement Y/Y 51% 56%

Sources: FactSet, Company Data, Credit Suisse estimates Dan Levy | 212-325-4617 | [email protected] 81 CS Rating = OUTPERFORM CS Target Price = $13 Ford Motor Company (F) – Cont. Current Price = $10

Est. 2018 Est. 2018 Est. 2018 Segment Revenue, $mn EBIT, $mn EBIT Margin Forward Strategy / Action Items Outperforming Businesses 73,100 11,177 15.3% North America Truck / Van 61,082 8,550 14.0% • Continued focus on F-Series, vans; rolling out Ranger in 2019 for mid-size pickup exposure Ford Credit 12,018 2,627 21.9% • Will remain strong, but profits likely peaked in 2018 In-line Businesses 40,232 2,455 6.1% • Maintain focus in SUV, esp Lg SUV (Expedition / Navigator); new product in 2019/2020 will help - new Explorer, Bronco, Aviator, Nautilus, Corsair; also rolling out refreshed Escape, new sm. rugged util, Mustang-inspired BEV North America - SUV, Mustang 27,314 1,505 5.5% • NA business to benefit from salaried workforce reduction (7k cuts global, $600mn annual benefit, assume mostly NA) • Product complexity reduction and yield management initiatives to help • Exiting South America heavy truck (announced 1Q'19) / cease production at São Bernardo do Campo plant; $460mn charges Int'l Van/Truck 12,918 950 7.4% • Alliance with VW to develop commercial vans and mid-size pickups (announced 1Q19), with initial focus in Europe, Africa, and S. America, with production as early as 2022; Targeting $500mn annual operating benefits Underperforming Businesses 46,980 (5,583) -11.9% North America sedan (ex Mustang) 8,197 (2,448) -29.9% • Exiting Ford branded sedans (announced 2Q'18); exit likely complete by 2020 Int'l ex Van/Truck 38,782 (3,135) -8.1% • See below for regional strategies Memo - Total Int'l 51,700 (2,185) -4.2% • Partnership with Mahindra (announced 1Q18), developing midsize SUV, compact SUV, and all-electric vehicle Total Asia ex China 12,400 443 3.6% • Future models won't be independently developed, but rather through partnership with Mahindra and others

• Launched "Ford China 2.0" - redesign of business to take best of Ford and make more tailored to China; focus on brand, product, talent, tech • New product: 6 new entries / major refreshes in '19 and '20 - Explorer, Territory, Kuga, Lincoln Aviator, new Lincoln utility, and new Ford Escape; overall, launching 30+ new Ford and Lincoln vehicles in next 3 yrs, with more than 10 of which electrified Total China NA (1,545) NA • Right-sized inventories, addressing dealer profitability • Workforce reduction - agency workers • Changing sourcing to local Chinese suppliers • New management team; China now a standalone business unit, reporting to Joe Hinrichs (President of Automotive)

• Redesign of Europe business (announced 1Q'19); three business groups - Commercial Vehicles, Passenger Vehicles, Imports • Addressing capacity and workforce - ending production at Aquitaine transmission plant (France) in Aug'19; ending production of C- Total Europe 31,300 (398) -1.3% Max/Grand C-Max at Saarlouis plant in Jun'19 (Germany); consolidating UK HQ; closing Bridgend Engine Plant in UK (announced Jun'19); 5k employee cut in Germany (announced Mar'19) • Restructuring Ford Sollers (Russia JV), exiting pass car business in Russia (focusing just on comm vehicles) (announced Mar'19) Total Middle East/Africa 2,700 (7) -0.3% • Exiting South America heavy truck (see above); comments on EPS calls have stated more to come on South America actions, likely Total South America 5,300 (678) -12.8% reducing footprint/workforce Support/Growth NA (1,047) NA Mobility 26 (674) NA • Mobility investment likely to increase in future Corporate NA (373) NA Total 2018 EBIT 160,338 7,002 4.4%

Sources: FactSet, Company Data, Credit Suisse estimates Dan Levy | 212-325-4617 | [email protected] 82 CS Rating = OUTPERFORM CS Target Price = $48 General Motors Company (GM) Current Price = $37

. Right balance of the “Two Clocks.” One of the best names in our coverage 2019E Volumes by Region balancing the ‘near’ with the ‘far,’ offering a compelling narrative on both fronts. 2019E Volumes Asia ex China NA Cars On the ‘near’ – healthy profit generation despite cycle risks 000's units 297 358 . . In NA, although % mix 4% 5% late cycle pressures will limit upside, NA margins can remain at or near 10%, driven NA Trucks ex K2XX/T1XX by continued strength in trucks, and also supported by cost actions. 1,453 19% . Healthy profits + reduced capital intensity drive positive trajectory for FCF – GM NA crucial, as it will support GM’s aggressive pursuit in the ‘far.’ 3,089 GM 40% . On the ‘far’, GM doubling down to address existential questions: International 4,624 China 60% − In AV, GM arguably near or at the front of the competitive pack, with critical 3,597 NA K2XX/T1XX 47% 1,277 validation via Softbank investment and GM thinking holistically about solution 16% − In EV, GM increasing focus, with more capital, focusing only on pure EVs, establishing standalone EV infrastructure Europe – implying progress ahead. South America 65 665 1% 8% CS Estimates vs. Consensus vs. Guidance 5 Year P/E-NTM

2018 2019E 2020E 5Yr Avg; 6.4x +1 Stdev; 7.5x -1 Stdev; 5.4x $mn, except per Guide 11x share amoutns Actual (mdpt) CS Est. Cons. CS Est. Cons. 10x Revenue 147,049 144,714 146,240 136,640 145,697 Y/Y% Growth 1.0% -1.6% -0.6% -5.6% -0.4% 9x EBIT 11,783 12,344 11,942 8x 7.5x Total Co. EBIT Margin 8.0% 8.5% 8.7% Y/Y Delta -81 bps 52 bps 21 bps 7x EPS $6.54 $6.75 $6.90 $6.65 $6.61 $6.36 6x Y/Y % Growth -1.2% 3.2% 5.4% 1.6% -4.2% -4.2% 5.7x Revenue 133,036 129,757 130,713 120,943 128,857 5x 5.4x Y/Y % Growth -0.3% -2.5% -1.7% -6.8% -1.4% 4x Automotive EBIT 9,890 10,436 10,064 3x (incl. Cruise / EBIT Margin 7.4% 8.0% 8.3% Corp) Adj. FCF 3,845 5,250 5,994 7,337 Y/Y% Growth -25.5% 36.5% 55.9% 22.4% Adj. FCF conversion 41.1% 60.6% 78.2%

Sources: FactSet, Company Data, Credit Suisse estimates Dan Levy | 212-325-4617 | [email protected] 83 CS Rating = NEUTRAL CS Target Price = $155 Lear Corporation (LEA) Current Price = $138 Narrative shifting amid what we see as the pivot from “Lear 1.0” to “Lear LEA Sales Mix by Product 2.0”

Structures . At center of Lear 2.0 is increased embrace of tech, so as to drive growth Wire Harness 8% in the face of an increasingly challenged auto industry environment, and also 16% to close the valuation multiple disparity vs. other tech-levered auto suppliers Surface Materials Electronics . Four ways the narrative has pivoted between Lear 1.0 and Lear 2.0: 15% 6% E-Systems − Growth - Using tech to drive top-line growth amid more challenged 24% Terminals & Connectors industry environment, 2% Seating − Margins - Negative trajectory amid challenged industry outlook, and also 76% related to increased tech emphasis

− Capital allocation - More focus on funding growth, reduced focus on Complete share buybacks Seat Systems − M&A - boosting tech capabilities in a more significant way 52%

CS Estimates vs. Consensus vs. Guidance 5 Year EV/EBITDA-NTM

2018 2019E 2020E 5Yr Avg; 5.4x +1 Stdev; 6.0x -1 Stdev; 4.8x $mn, except per share Guidance Credit Credit 7x amounts Actual (mdpt) Suisse Cons. Suisse Cons. Revenue 21,149 21,300 21,014 21,122 21,876 22,059 6.0x Y/Y % Growth 3.3% 0.7% -0.6% -0.1% 4.1% 4.4% 6x Organic Revenue Growth -0.9% 1.5% 2.5% 4.1% 7.2% Adj. EBITDA 2,234 2,170 2,145 2,137 2,243 2,230 5x Adj. EBITDA Margin 10.6% 10.2% 10.2% 10.1% 10.3% 10.1% 4.8x Adj. EBIT 1,750 1,650 1,594 1,623 1,668 1,701 4.5x Adj. EBIT Margin 8.3% 7.75% 7.6% 7.7% 7.6% 7.7% 4x Y/Y Delta -13 bp -53 bp -69 bp -59 bp 4 bp 3 bp Adj. EPS $18.22 $17.46 $17.57 $19.98 $19.64 3x Y/Y % Growth 7.1% -4.2% -3.5% 14.5% 11.8% Free Cash Flow 1,103 900 883 912 975 1,022 FCF Margin 5.21% 4.23% 4.20% 4.32% 4.46% 4.63%

Sources: FactSet, Company Data, Credit Suisse estimates Dan Levy | 212-325-4617 | [email protected] 84 CS Rating = NEUTRAL CS Target Price = $55 Magna International Inc. (MGA) Current Price = $49 . We see solid FCF generation ahead, which will help to support EPS growth in the face of what we see as limited EBIT growth. Yet given our outlook for Sales Mix by Segment, 2018 modest top-line growth and that it may take time for the FCF story to drive a re- Sales ($bn) rating, we remain on the sidelines Mix (%) Complete . MGA an anomaly amongst auto suppliers – most suppliers have pursued product Vehicles specialization, while MGA has maintained a diverse product offering; similarly, 6,018 MGA focused on auto tech, but not just one ‘megatrend.’ 15% Body Seating Exteriors & . FCF is the link in this strategy – mature products can fund development in new Systems Structures tech; FCF also supports EPS growth in the face of limited EBIT growth via share 5,548 17,527 13% buybacks or inorganic growth 42% Limited top-line outgrowth expected vs. market . – high leverage to North Power & America (expect modestly negative growth given late in cycle); newer high-growth Vision products limit growth contribution as MGA is already mature and dominant in many of 12,321 its product lines 30%

CS Estimates vs. Consensus vs. Guidance 5 Year EV/EBITDA-NTM 2018 2019E 2020E 5Yr Avg; 5.4x +1 Stdev; 6.1x -1 Stdev; 4.7x $mn, except per share Guide: 8x amounts Actual (mdpt) CS Est. Cons. CS Est. Cons. Revenue 40,827 40,200 40,171 40,553 40,250 40,925 7x Y/Y % Growth 11.6% -1.5% -1.6% -0.7% 0.2% 0.9% 6.1x Organic Growth 10.0% 3.1% na 1.2% na 6x Adj. EBITDA 4,385 4,089 4,030 4,145 4,075 Adj. EBITDA Margin 10.7% 10.2% 9.9% 10.3% 10.0% 5x Adj. EBIT 3,107 2,754 2,690 2,656 2,728 2,674 4.7x 4.7x Adj. EBIT Margin 7.6% 6.9% 6.7% 6.5% 6.8% 6.5% 4x Y/Y Margin Delta -85 bps -76 bps -91 bps -106 bps 8 bps -2 bps Adj. EPS $6.71 $6.31 $6.28 $7.23 $6.93 3x Y/Y % Growth 13.0% -6.0% -6.4% 14.7% 10.4% Free Cash Flow 1,590 1,900 1,823 1,752 1,882 1,639 FCF Margin 3.9% 4.7% 4.5% 4.3% 4.7% 4.0%

Sources: FactSet, Company Data, Credit Suisse estimates Dan Levy | 212-325-4617 | [email protected] 85 CS Rating = UNDERPERFORM CS Target Price = $189 Tesla Inc (TSLA) Current Price = $224

. Tesla leads in areas that will define the future of car making – electrification TSLA Annual Deliveries and software. And in the push to electrification, Tesla has cost advantages over TSLA Deliveries (000's units) legacy automakers (battery cost, no legacy footprint, retail base aligned with strategy) 900 S/X, Pickup, Roadster 817 787 . Tesla risks ahead in its growth path: competition from larger players, struggles 800 Model 3 with basic ‘blocking and tackling’ of auto industry, lack of scale. If Tesla can’t 687 700 Model Y 657 maintain healthy margins / execute in the undifferentiated aspects of the auto 572 410 business, then Tesla’s edge on the differentiating aspects of the business could be a 600 400 275 325 moot point. 500 175 397 400 . Volume growth ahead for Tesla, yet we believe Tesla more likely to settle out 320 as a niche automaker. While Tesla has implied that annual volume could be north 300 246 300 300 of 1.5mn units, we see Tesla volume reaching just north of ~800k units by 2025. 336 340 325 300 200 261 103 146 . Estimates below consensus, as we believe stock is not reflecting risks associated 100 101 99 107 with growth for years ahead 60 59 57 57 62 87 0 2017 2018 2019E 2020E 2021E 2022E 2023E 2024E 2025E

CS Estimates vs. Consensus vs. Guidance TSLA vs VW – 2018 $mn, except per share 2018 2019E 2020E 2021E 2022E TSLA vs VW Group TSLA VW amounts Actual CS Est. Cons. CS Est. Cons. CS Est. Cons. CS Est. Cons. Revenue 21,461 23,316 25,660 27,310 31,666 39,550 42,376 43,556 49,509 Revenue $21,461 € 235,849 Y/Y % Growth 82.5% 8.6% 19.6% 17.1% 23.4% 44.8% 33.8% 10.1% 16.8% Adj. EBIT $361 € 17,104 Gross Profit 4,042 3,250 4,459 4,153 6,459 6,186 8,496 7,194 11,518 Gross Margin 18.8% 13.9% 17.4% 15.2% 20.4% 15.6% 20.0% 16.5% 23.3% Net Profit ($227) € 11,827 Auto Gross Margin Ex ZEV Cr. 23.4% 19.8% 20.6% 21.3% 21.3% 21.0% 21.7% 21.6% 22.3% Adj. EBITDA 2,262 1,527 2,168 1,967 3,781 3,821 5,594 4,658 8,258 Adj. Free Cash Flow ($3) € 5,575 Adj. EBTDA Margin 10.5% 6.5% 8.4% 7.2% 11.9% 9.7% 13.2% 10.7% 16.7% Adj. EBIT 361 (280) 60 299 1,436 1,951 2,690 2,565 4,308 Net Debt / (Cash) $8,286 (€ 19,368) Adj. EBIT Margin 1.7% -1.2% 0.2% 1.1% 4.5% 4.9% 6.3% 5.9% 8.7% R&D + Capex $3,331 € 26,858 Adj. EPS ($1.33) ($5.47) ($1.67) ($1.29) $5.68 $7.00 $11.45 $9.92 $18.33 Y/Y % Growth -84.6% 311.0% 25.4% -76.5% -440.1% -644.4% 101.8% 41.6% 60.0% Light Vehicle Deliveries (000's units) 246 10,609 Free Cash Flow (3) (788) 63 (897) 1,093 513 2,558 727 4,330 Deliveries (000's) Note: all figures in mn except where otherwise noted Model S 51 29 34 28 39 27 33 27 30 Note: VW adj. cash flow excludes diesel headwinds Model X 49 31 35 31 38 30 33 29 29 Model 3 146 261 292 336 379 340 431 325 488 Subtotal 246 320 361 395 456 397 497 381 547

Sources: FactSet, Company Data, Credit Suisse estimates Dan Levy | 212-325-4617 | [email protected] 86 CS Rating = NEUTRAL CS Target Price = $18 Veoneer, Inc. (VNE) Current Price = $17

. The case for VNE is simple – given it plays in the high-growth VNE EBIT, EBIT Margin, & Organic Revenue Growth active safety market, and supported by a robust order book, it $mn EBIT ($mn) EBIT Margin Organic Revenue Growth offers potential for low double digit organic revenue CAGR 300 30%

through the middle of next decade – which would be well in 200 20% excess of other suppliers. 100 10%

. Post spin from Autoliv last year, VNE offers highest relative 0 0%

exposure to the high-growth active safety space. (100) -10%

. Yet challenge ahead for VNE is to pivot to profitability alongside (200) -20%

growth. Significant resources required to support growth plans. (300) -30% Only forecast EBIT breakeven by 2023. (400) -40%

. With significant cash burn alongside the negative profitability, (500) -50% VNE may need another fundraise along the way.

CS Estimates vs. Consensus vs. Guidance

$mn, except per 2018 2019E 2020E 2021E 2022E 2023E 2024E 2025E share amounts Actual CS Est. Cons. CS Est. Cons. CS Est. Cons. CS Est. Cons. CS Est. Cons. CS Est. Cons. CS Est. Cons. Revenue 2,228 2,005 2,050 2,330 2,358 2,853 2,762 3,401 3,343 3,921 3,865 4,252 4,462 4,449 5,191 Y/Y % Growth -4.0% -10.0% -8.0% 16.3% 15.0% 22.4% 17.1% 19.2% 21.0% 15.3% 15.6% 8.4% 15.5% 4.6% 16.4% Organic Growth -5.5% -7.6% -6.2% 16.5% 13.7% 22.4% 20.5% 19.2% 23.8% 15.3% 16.6% 8.4% 17.0% 4.6% 15.0% Adj. EBITDA (86) (300) (305) (154) (147) (42) (24) 53 112 228 258 319 464 418 661 Adj. EBTDA Margin -3.9% -15.0% -14.9% -6.6% -6.2% -1.5% -0.9% 1.6% 3.3% 5.8% 6.7% 7.5% 10.4% 9.4% 12.7% Adj. EBIT (197) (452) (434) (321) (287) (208) (162) (114) (21) 60 139 154 298 252 431 Adj. EBIT Margin -8.8% -22.6% -21.2% -13.8% -12.2% -7.3% -5.9% -3.3% -0.6% 1.5% 3.6% 3.6% 6.7% 5.7% 8.3% Y/Y Delta -677 bps -1372 bps -1233 bps 877 bps 898 bps 650 bps 632 bps 393 bps 524 bps 487 bps 422 bps 211 bps 308 bps 203 bps 162 bps Adj. EPS ($3.18) ($5.08) ($5.10) ($3.17) ($3.41) ($2.36) ($1.97) ($1.76) ($0.56) ($0.07) $0.90 $1.01 $1.93 $1.95 $3.02

Free Cash Flow (368) (592) (552) (421) (393) (364) (209) (293) (93) (97) 2 37 135 150 212

Guidance (original guide; subsequent comment) - NOTE: Currently targets are neither affirmed nor denied Revenue ~3,000; slight later ~4,000; upside >6,000 Organic Sales growth Mid SD decline Adj. EBIT Margin 0 - 5%; 1-2 years later

Sources: FactSet, Company Data, Credit Suisse estimates Dan Levy | 212-325-4617 | [email protected] 87 Appendix

Dan Levy | 212-325-4617 | [email protected] 88 Coverage summary: Our estimates vs. consensus

Company Revenue EBITDA EBIT EPS $mn, except per share amounts Target Price 2Q FY19 FY20 2Q FY19 FY20 2Q FY19 FY20 2Q FY19 FY20 Y/Y Y/Y Guidance Improvement Improvement F Credit Suisse $13 $36,568 153,223 146,277 1,937 8,922 9,629 $0.32 $1.53 $1.65 Street $11 $38,838 157,553 156,336 $0.31 $1.39 $1.44 Guidance 6.50-7.00 GM Credit Suisse $48 $35,242 144,714 136,640 2,471 12,344 11,942 $1.33 $6.90 $6.61 Street $48 $36,014 146,240 145,697 $1.48 $6.65 $6.36 Credit Suisse $189 $6,521 23,316 27,310 439 1,527 1,967 (4) (280) 299 ($0.87) ($5.47) ($1.29) TSLA Street $279 $6,416 25,660 31,666 555 2,168 3,781 (29) 60 1,436 ($0.55) ($1.67) $5.68 Guidance 16,500-16,700 H2 > H1 ADNT Credit Suisse $24 $4,074 16,549 16,049 202 799 992 126 498 674 $0.45 $1.72 $2.94 Street $22 $4,154 16,667 16,716 199 795 949 103 394 569 $0.41 $1.59 $3.20 Guidance 3,600 - 3,700 14,425-14,825 550 - 570 2,355-2,435 375 - 395 1,630-1,710 $1.11 - 1.17 $4.90-5.10 APTV Credit Suisse $90 $3,628 14,774 15,424 565 2,395 2,520 381 1,671 1,783 $1.15 $5.02 $5.51 Street $90 $3,665 14,747 15,698 554 2,363 2,592 386 1,666 1,861 $1.15 $5.03 $5.73 Guidance 7,300-7,400 1,200-1,250 655 AXL Credit Suisse $15 $1,767 7,263 7,216 273 1,172 1,164 133 616 685 $0.53 $2.71 $3.16 Street $18 $1,786 7,265 7,177 279 1,179 1,176 137 611 611 $0.59 $2.79 $2.83 Guidance 9,901-10,372 1,180-1,270 $4.00-4.35 BWA Credit Suisse $50 $2,518 10,203 10,650 403 1,649 1,738 296 1,215 1,251 $1.00 $4.11 $4.35 Street $48 $2,559 10,306 10,840 412 1,669 1,779 304 1,241 1,320 $1.02 $4.21 $4.59 Guidance 8,950-9,350 9,020-9,580 1,085-1,165 1,120-1,240 $2.95-$3.45 $3.15-3.65 DAN Credit Suisse $22 $2,366 9,105 9,143 297 1,116 1,147 202 749 738 $0.88 $3.29 $3.50 Street $23 $2,340 9,035 9,189 291 1,108 1,150 208 766 796 $0.89 $3.31 $3.49 Guidance 4,650-4,750 418-428 $3.00-$3.20 DLPH Credit Suisse $21 $1,128 4,558 4,482 147 644 704 90 416 454 $0.63 $3.12 $3.48 Street $26 $1,156 4,691 4,818 144 640 705 90 423 481 $0.64 $3.14 $3.71 Guidance 20,900-21,700 2,120-2,220 1,600-1,700 LEA Credit Suisse $155 $5,098 21,014 21,876 508 2,145 2,243 368 1,594 1,668 $3.95 $17.46 $19.98 Street $170 $5,210 21,122 22,059 504 2,137 2,230 376 1,623 1,701 $4.07 $17.57 $19.64 Guidance 39,100-41,300 2,620-2,890 MGA Credit Suisse $55 $9,565 40,171 40,250 1,029 4,089 4,145 671 2,690 2,728 $1.56 $6.31 $7.23 Street $55 $10,056 40,553 40,925 1,019 4,030 4,075 665 2,656 2,674 $1.56 $6.28 $6.93 Mid SD decline Guidance (organic growth) VNE Credit Suisse $18 $468 2,005 2,330 (111) (300) (154) (147) (452) (321) ($1.73) ($5.08) ($3.17) Street $24 $485 2,050 2,358 (107) (305) (147) (138) (434) (287) ($1.64) ($5.10) ($3.41) Note: blue font represents implied guidance Note: ADNT 2Q represents calendar 2Q and fiscal 3Q

Sources: Credit Suisse estimates, FactSet, Company Data Dan Levy | 212-325-4617 | [email protected] 89 Recent and upcoming select BEV model launches Battery size Range OEM Brand Model Type Price Comments (kwh) (mi) Key 2018 Launches Tata Jaguar I-Pace SUV ~$75k 90 234 0-60 < 4.5 sec Hyundai Hyundai Kona SUV ~$37.5K 64 258 Sales in US start in 2019 Hyundai Kia Soul SUV ~$34k 30 111 VW Audi e-tron SUV ~$75k 95 204 0-60 in 5.5 sec; Sales in US start in 2019 Key 2019 Launches Hyundai Kia Niro EV SUV 64 ~239 64kWh battery PSA Peugeot 208 Car 50 250 EV variant of 208 car Nissan Nissan Leaf E-Plus Car ~38k 62 ~226 On sale in the U.S in spring 2019 PSA Peugeot DS3 Crossback E-Tense SUV 50 186 EV Variant of new small SUV VW Porsche Taycan Car ~$90k ~300 0-60 in 3.5s; deliveries to start in 2020 Daimler Mercedes-Benz EQC SUV ~$75K 80 280 0-60 in < 5.0 sec Honda Honda B-Hatch EV Car 155 Urban EV concept, targets 2019 Europe launch VW Audi e-tron Sportback Car 0 - 62 in 4.5 secs; ~486hp Aston Martin Aston Martin Rapide E Car 65 200 0-60 < 4.0 sec; top speed of 155 mph Daimler Mercedes-Benz eSprinter Van 55 95 Payload of 2,200 lbs Key 2020 Launches Hatchback based on Vizzion Concept; Sales start in 2020; first car in I.D. VW VW ID. 3 Car ~$34k 48 ~205 Concept generation Geely Volvo XC40 SUV ~$50k 310 Based on 40.2 concept Tata Jaguar XJ Car 300 Reportedly priced at competitive level vs Tesla BMW Mini Mini E Car ~$35k ~150 Urban EV concept Geely Volvo Polestar 2 Car ~$45k 78 ~275 408 hp; Four-door "fastback" body type GM Buick CUV CUV Small CUV segment supporting 2 entries in 2 global mkts GM CUV CUV Small CUV segment supporting 2 entries in 2 global mkts Tesla Tesla Model Y SUV ~$47k ~300 Coming to market in fall of 2020; $39k standard range version to arrive in 2021 VW SEAT el-born Car 62 ~260 Hatchback; 2nd MEB-based all-electric vehcile from VW Ford Mach 1 SUV ~300 Small SUV EV, Mustang-inspired design BMW BMW iX3 SUV ~250 All electric version of X3 VW VW I.D. Crozz SUV VW SKODA VISIONV iV Car 83 ~310 Built on MEB platform; coming in 2020 VW Audi Q4 e-tron SUV ~279 0-100 in 6.3 secs; First Audi built on VW Group's MEB platform 3 battery packages (105kWh = 230+ miles; 135kWh = 300+ miles; 180kWh = Rivian Rivian R1T Pickup $69k 105 ~230+ 400+ miles) Note – excludes PHEV model introductions, as well as EV model introductions in China. Vehicle range stated on EPA basis where possible; however, the EPA range is not provided for all vehicles, and thus ranges may not be fully comparable between vehicles

Sources: Company data, Credit Suisse Research, Autonews, EV database, Electrek, Inside EVs Dan Levy | 212-325-4617 | [email protected] 90 EV Strategies by company

Company Electrification Target Company Electrification Target • Committed to a world with "zero emissions" • 50% of sales to be fully electric by 2025; committed to putting 1mn electrified cars on • Launching multi-brand multi-segment BEV platform, with Cadillac as the lead brand the road by 2025 Volvo GM • BEV architecture mission of 300+ mi range, and profitable • All new models launched in 2019 and onward will be electrified • 1 mn BEV units sold annually by 2026 • Five new BEVs in lineup by 2021 • Launch 20 NEVs in China by 2023; 10 by 2020; 10 more from 2021 - 2023 • Will offer an electric or hybrid version of all new models starting in 2019 • Invested 500mn in Rivian with plans to develop a BEV on Rivian's skateboard platform; • 15 new electrified models launched over next two yrs. - 8 PHEV, 7 BEV PSA incremental to Ford's prior plans incl. Mustang-inspired crossover BEV (coming in 2020), • 50% of vehicles in PSA Group line-up electrified by 2021 and 100% electrified 2025 Ford and F-150 pickup BEV • Launching 'MOTION & e-MOTION' EV brand; signals the start of the plan to provide • Lineup of 40 electrified vehicles by 2022, including 16 BEVs a fully electrified range by 2023 • Investing £13.5bn (~$18bn) in electrification over next 3 yrs. (through 2021); prior 3 • Invest $11bn+ in electrification (2015-2022) JLR yrs. spend £10.7bn • Product line expansion with 10 BEVs by 2022, including 4 BEVs and 10 PHEVs for • All JLR models will have an electric option from 2020 Jeep; 4 BEVs and 8 PHEVs for Maserati; 2 BEVs for Fiat 500 family; Alfa Romeo to FCA Renault - Nissan - • The Alliance to launch 12 new EVs by 2022 launch 6 new PHEVs Mitsubishi • Alliance Ventures to invest up to $1bn by 2022 to support open innovation (i.e. vehicle • Invest €9 bn in electrification by 2022 Alliance electrification, autonomy, connectivity) • Annual capex of $2.5-3bn over next two fiscal years • Partnering with Subaru to jointly develop an EV platform for mid-size and large Tesla • Future product launches (in addition to current lineup) - Model Y (crossover variant of passenger EVs Model 3), Roadster, Semi, Pickup • Sales of more than 5.5 mn electrified vehicles by 2030 including more than 1 mn ZEVs • US-based EV start-up founded in 2008, focusing on electrification in the SUV/truck Toyota • 50% of all vehicles sold globally in 2030 to be electrified space; planning to launch R1T (electric pickup) and R1S (electric SUV) Rivian • Launch more than 10 BEVs by the "early 2020s" • $700mn from investment round led by Amazon (Feb'19); $500mn investment from • Every model will have an electrified variant by 2025 Ford (Apr'19) • Invest more than ¥1.5‎ tn ($13.3 bn) through 2030 to develop EV batteries • Launch 70 new BEV models by 2028 • 100% of European sales to be electric by 2025; introduce more than 20 electric • 2-3 mn expected units or 20-25% Group sales intended to be BEV by 2025; by 2030 models in China by 2025 Honda at least one electrified version for each of the group's models & ~40% of group fleet to • Electric vehicles to compromise 2/3 of the global portfolio by 2030 including 15% EV be BEVs and 50% Hybrids • Ensured €50bn battery cell procurement (€40bn already awarded); translates into • Electric line-up to include 31 vehicles by 2020 (8 BEVs, 2 FCEVs, 11 PHEVs, 10 Volkswagen Group procurement of batteries for 50mn vehicles HEVs) and 44 vehicles by 2025 Hyundai • Launching all-electric MEB platform in 2020; expects 22mn electric vehicles to be built • Invest $40 bn over a 5 year period starting in 2019 to develop electrified models, on VW's new electric platforms over the next 10 years, including 11.6mn in China; e.Go autonomous technologies and transportation services Mobile is first external partner for MEB platform SAIC • Expecting 600,000 EV unit sales in 2020 • Invest €44 bn on e-mobility, autonomous driving, new mobility services through 2023 • 20 electrified models by 2022 Dongfeng (1/3 of total expenditure); more than €30 bn of that is for electrification of the fleet • 30% of sales will be EV by 2022 • More than 10 BEV models by 2022 • Launch 30 new energy (BEV / PHEV) models by 2020; 90% of sales to come from Geely • 1 electrified variant in every segment model by 2022 new energy models by 2020 • €10 bn invested in e-mobility by 2022 Daimler BYD • Sales of 1 tn Yuan (~$150 bn) by 2025 • Above 130 electrified variants by 2030 BAIC • All sales to be electric by 2025: sales in Beijing to be electric by 2020 • BEV volume share between 15-25% until 2025; 50% of Mercedes sales to be Cherry • Electrification of all models by 2020 electrified by 2030 • 100% of sales to be electric by 2025 • Launch 25 electric vehicles by 2025: 12 pure BEV and 13 PHEV. Changan • Produce 33 new energy models by 2025; 21 BEVS & 12 PHEVs BMW • 15-25% of sales expected to be electrified by 2025 • Invest more than 100 bn yuan ($15 bn) by 2025 into its "new energy strategy"

Source: Company data, Credit Suisse Research, Automotive World, CleanTechnica, Electrek, Dan Levy | 212-325-4617 | [email protected] 91 Automotive News Electrification targets by country Country Electrification Targets • No federal target; state targets vary with the most aggressive being California's mandate of 22% ZEV United States credits by 2025 and target of 5mn ZEVs on the road by 2030 Canada • New light vehicle sales to be 10% ZEV by 2025, 30% by 2030, and 100% by 2040 • Reduce automakers' carbon dioxide emissions from new cars by 15% by 2025 and 37.5% by 2030 (base European Union year: 2021) • All new light vehicle sales to be ZEV by 2025; All new heavy commercial vans and 75% of new long distance Norway buses to be ZEVs by 2030 France • Ban new ICE vehicle sales by 2040 Germany • 1 million EVs on the road by 2022 Denmark • Ban petrol and diesel new car sales by 2030 Netherlands • All new vehicles sales to be ZEV by 2030 • 100% of new vehicles in 2040 to have zero emissions capability (BEV or PHEV); Ban new ICE vehicle sales United Kingdom by 2032 in Scotland Sweden • Banning ICE vehicle sales after 2030 Ireland • All new vehicle sales to be electric by 2030 • Automakers need an NEV credit of at least 10% in 2019, and 12% in 2020; may not result in 10% NEV China penetration of total sales as credits vary by EV specifications (required mandate) • 2mn NEV sales annually by 2020 and NEVs to account for 20% of total vehicle sales by 2025 Japan • All new car sales to be Electric or Hybrid by 2050 South Korea • 30% EV market share by 2020 Taiwan • Ban all sales of non-electric motorcycles and cars by 2035 and 2040, respectively India • At least 15% of fleet to be EVs by 2024, and 30% of fleet to be EVs by 2030 Israel • Ban sales of ICE vehicles by 2030

Source: Country Data, Forbes, Electrek, Guardian, Fleetworld, Quartz, CA.GOV, ICCT, Bloomberg, Dan Levy | 212-325-4617 | [email protected] 92 Credit Suisse Chemicals, Credit Suisse Research Electrification incentives by country

Country EV incentives Country EV incentives $2,500 - $7,500 PEV tax credit; begins to phase out after manufacturer sells Value added tax deductions for EVs and PHEVs 200,000 qualified EVs Portugal United States BEVs are exempt from registration tax and PHEVs receive a 75% reduction Various states have local incentives/tax credits EVs exempt from circulation tax for 10 years $2,500 - $5,000 federal incentive for ZEVs; incentive varias depending on vehicle Germany Bonus granted for BEVs, FCEVs, PHEVs and EREVs type/range and only applies for vehicless under $45 ($55k if >= 7 seats) Canada Various Tax reductions depending on each locals policy British Columbia offers a potential rebate of $5,000 for BEVs, %6,000 for hydrogen Switzerland fuel cell vehicles, and $2,500 - $5,000 for PHEVs BEV's are exempt from import tax Quebec offers a rebate of up to $8,000 for Evs, and $600 for home charging stations Czech Republic EVs, HEVs and other APVs are exempt from road tax VAT exception for leasing of EVs BEVs receive a € 3k subsidy for 2019 & 2020; up to purchase price of € 50k No Import tax on EVs EVs are exempt from fuel consumption/pollution tax Norway Austria Reduction of VAT on EV purchases EVs are exempt from ownership tax and company car tax Certain locals offer reduced/free parking, access to ferries, access to bus lanes ZEVs qualify for deductible VAT EVs and PHEVs qualify for purchase tax (VRT) relief and grant support Financial incentives are granted for the purchase of ZEVs Ireland Slovenia EVs qualify for the minimum rate of road tax BEVs qualify for the lowest rate of tax on motor vehicle EVs exempt from annual circulation tax for five years and receive a 75% reduction for Cars emitting less that 50g/km are exempt from first year allowances (FYAs) Italy following years United Kingdom Zero-emission vehicles attract a zero rate of vehicle excise duty (VED) BEVs pay the lowest amount for company car tax and the lowest fee for technical Reduction on company car tax rates for ultra-low emissions and electric vehicles Latvia inspections BEVs pay only 65% of the registration tax in 2018; 90% in 2019; 100% in 2020 Denmark Hydrogen and fuel cell-powered vehicles are exempt from registration tax until the end Slovakia BEVs are exempt from motor vehicle tax and pay the lowest rate for registration tax of 2020 Zero-emission cars pay the lowest rate of company car tax EVs and PHEVs are exempt from registration tax, annual circulation tax and company Netherlands Hungary Zero-emission cars are exempt from registration and motor vehicle taxes car tax. EVs and PHEVs are exempt from registration tax EVs are exempt from ownership tax Romania BEVs and FCEVs qualify for purchase subsidies The purchase of BEVs and hybrids qualify for a bonus Belgium EVs pay the lowest rate of annual circulation tax Bulgaria EVs are exempt from ownership tax ZEVs qualify for a 120% deduction from company car tax EVs and HEVs are exempt from registration tax and the annual circulation tax Greece EVs and FCEVs benefit from tax allowances on registration fees EVs and HEVs are exempt from the luxury tax and luxury living tax Luxembourg EVs pay the minimum rate of annual circulation tax Sweden EV bonus of up to SEK 60,000 (~$6,500) Pure electric and hydrogen cars pay the lowest rate of the company car tax CNY 25,000 ($3,700) max subsidy for BEVs with ranges of 400 kilometers; subsidy China scales down as range decreases to the lower limit of 250 kilometers, and will be EVs are exempt from company car tax completely phased out after 2020 France C02 based bonus granted for EVs and HEVs Spending ~$1.4 bn to subsidize EV and Hybrid sales through FAME plan; Subsidies will amount to about 10k rupees (~$141) for each kWh of battery capacity in a vehicle; Relief granted to switch from an old diesel vehicle with a new BEV or PHEV India Subsidies to support 1mn electric two-wheelers, 500k three-wheelers, 55k electric Spain Ownership tax reductions for fuel-efficient vehicles cars and 7k buses

Source: ACEA, Credit Suisse estimates, EVAdoption, IEA, BNEF, Driving, Bloomberg, Dan Levy | 212-325-4617 | [email protected] 93 ICCT, Electrek, Forbes AV strategy highlights by company

Company Autonomous Plans / Key Actions • Planning to roll out level 3 autonomy by 2020 and to introduce level 4 autonomy as early as 2023 • Partnership with Waymo - producing more than 62k autonomous Chrysler Pacifica hybrid minivans with Waymo, 2018-2021; began discussions with Waymo on developing a Waymo- equipped fully self-driving vehicle for FCA retail customers FCA • Partnering with Aurora Innovation to develop and deploy autonomous tech on commercial vehicles (Jun'19) • Joined consortium in Aug'17 with BMW and Intel/Mobileye to develop L3 autonomous technology • Through partnership with Aptiv, launching L2+ system to be introduced in FCA 2020CY launches • Planning scale launch of commercial-grade fully autonomous (Level 4) in 2021 designed to move people and goods • Ford to contribute to Mobileye REM crowd-sourced map platform • Rolling out commercial service in Miami, with planning underway in Washington DC; testing also occurring in Pittsburgh and Detroit, MI Ford • Acquired majority stake in Argo (start-up focused on self-drive system) in Feb'17 for $1bn; investing $4bn in AV development through 2023 • Pilots with Domino's, Postmates, and Walmart to better understand delivery of goods • Developing Level 3 autopilot system for consumer use • Planning launch of autonomous ridesharing in San Francisco at scale by end of 2019 • GM Cruise thus far received three large investment commitments. May'19 - $1.15bn invested by T. Rowe advised funds/accounts and existing partners GM, Softbank, and Honda - valuing cruise at $19bn; Oct'18 - Honda invested $750mn in GM Cruise, valuing it at $14.6bn, with an additional $2bn to be contributed by Honda in joint AV projects over 12 yrs; May'18 - $2.25bn investment commitment from Softbank in GM Cruise, valuing GM Cruise at $11.5bn GM • Acquired Cruise Automation in early 2016 for ~$600mn; using all-electric Chevy Bolt as basis for autonomous ridesharing product • Fully integrated solution for AV stack; acquired Strobe in Oct'17 to build LiDAR capability in-house; first company to use mass-production methods for AV manufacturing; by early 2018 had already put out 4th gen of AV • Partnering with DoorDash to test autonomous food delivery • Super Cruise (GM's Level 2+ system) to be available throughout US Cadillac line-up • Enhanced Autopilot (L2+ system) currently offered as an option to Tesla customers; Full-Self Driving option also sold to customers with expectation of full self-driving being offered sometime in 2020 • As of Apr'19, Tesla owners have driven 70+mn miles with Navigate on Autopilot activated, and 9+mn successful lane changes have been completed; as of Jan'18, ~300k vehicles on Tesla road with full hardware and software package (full sensor suite, constantly connected), and 1mn+ vehicles expected by mid-2020 • Planning an autonomous mobility service (Tesla Network), a network with hybrid of ride-hailing and car-sharing; CEO Elon Musk previously noted (May'18) that service would be ready by end '19 • Developing vehicles for AMoD offering (autonomous mobility on demand), with guidance of $500mn AMoD revenue by 2025 • Running autonomous test vehicles in Las Vegas, Boston, Pittsburgh, Singapore, and China; autonomous pilot in Las Vegas through Lyft network (30 test cars on Lyft network, 45 cars out of network) with 50k+ paid autonomous rides and 1mn+ autonomous miles traveled thus far; Fleet on Lyft network launched in May'18 Aptiv • Developing much of AV stack in-house; acquired nuTonomy for $450mn in Oct'17, Ottomatika in 2015, to add self-drive capabilities • Announced partnership with Mobileye in Aug'16 for CSLP platform (central sensing localization and planning) - turnkey solution for L4 vehicles • Tier 1 supplier on BMW/Intel/Mobileye AV consortium; Tier 1 supplier on Audi L3 program; Tier 1 supplier for various L2+ programs

Sources: Company Data, Credit Suisse Research, Autonews, Techcrunch, Guardian, 94 Fortune, Electrek Dan Levy | 212-325-4617 | [email protected] AV strategy highlights by company (cont.) • Collaborating with Lyft (announced Mar'18) to co-develop a scalable Autonomous Software Stack and Kit Hardware; the joint team has successfully completed a continuous 10-week public autonomous ride-sharing program with Lyft employees • Waymo announced in 2018 that they will use Magna to integrate their self-driving system into a fleet of vehicles • Working with Waymo on retrofitting vehicles with AV system Magna • Joined self-driving consortium with BMW and Intel/Mobileye (also incl. Aptiv, Continental and FCA) in Oct'17, with 2021 launch • Serving as Tier 1 supplier of LiDAR (using Innoviz LiDAR) for BMW 2021 AV launch • Developing MAX4 autonomous driving platform (announced Aug'17), enabling up to L4 autonomous driving capabilities, by combining sensors (radar, LiDAR, ultrasonic) with compute platform • Volvo to use Zenuity software and VNE control unit hardware in autonomous drive ready base vehicles it supplies to Uber (June'19) • Received approval in Jan'19 for hands-off self-driving tests on public roads in Sweden Veoneer • Introduced "Zeus" supercomputer, for L4 autonomy, in Oct'18; combines Zenuity autonomous driving software stack with NVIDIA DRIVE AGX Xavier; system provides sensor fusion with self-drive controls • Formed Zenuity JV with Volvo in 2017 to develop autonomous driving software systems; Volvo's Polestar is first model on market with Zenuity's ADAS stack • Mobileye develops REM crowd-sourced map platform, exploits proliferation of ADAS cameras to maintain in near-real-time accurate map • Vision based solution provides functionality from basic Level 2 ADAS through Level 4/5 autonomous, with capabilities in all core pillars of AV development (sensing, mapping, driver policy, compute) • Announced plan in Oct'18 to collaborate with VW to commence self-driving taxi service in Israel in 2019, targeting scale in 2022 (few hundred vehicles); Mobileye to provide self-driving Mobileye / Intel technology to pilot • Announced collaboration in Jan'19 with Beijing Public Transport Corp and Beijing Betai to develop autonomous commercial public transportation services in China, to be deployed in 2022 • Alliance with BMW (subsequently added FCA, MGA, APTV, Conti) for development of L3/L4 autonomous vehicles with 2021 launch • Announced partnership with Aptiv in Aug'16 for CSLP platform (central sensing localization and planning) - turnkey solution for L4 vehicles • Acquired by Intel in 2017 for $15bn; Intel purchased a 15% stake in HERE, a mapping service, in the same year • Waymo's goal is to bring fully self-driving technology to the world • Enters agreement with Renault-Nissan to explore driverless vehicle opportunities in France & Japan • Partnering with Lyft to offer self-driving rides in Waymo vehicles on the Lyft network in Phoenix Waymo • As of Oct'18 accumulated 10 mn self-driven miles on public roads; 7 bn miles driven in Waymo's virtual world (simulator) • Launched Waymo One, commercial self-driving ride service, in Phoenix area in late 2018; examining other cities for expansion • Collaborating with multiple automakers (JLR (Jaguar I-PACE), FCA (Chrysler Pacifica PHEV), Renault-Nissan) for supply of self-driving vehicles • Developing all of AV stack internally • Pursuing dual-track development of autonomous driving - partnerships to provide Lyft network with different autonomous players (i.e. Waymo, Aptiv/nuTonomy, JLR, etc.), while also Lyft pursuing its own AV development jointly with Magna • Uber unveiled self-driving Volvo designed to be fully driverless, as a step towards a robotaxi service (Jun'19) • As of May'19, Uber's Advanced Technologies Group (ATG) had over 1,000 employees, built over 250 self-driving vehicles, and had spent over $1bn on self-driving technologies • $1bn investment in the ATG by Toyota, Denso, & SoftBank Vision Fund to accelerate the development & commercialization of autonomous ridesharing (04/19); the investment valued the ATG at $7.25bn Uber • Resumed testing of self-driving cars in Dec'18 in Pittsburgh; ops previously shut down due to pedestrian death • $500mn investment committed by Toyota in Aug'18 to support joint development of autonomous driving with Uber; expects to integrate their autonomous vehicle technologies into purpose-built Toyota vehicles to be deployed on the Uber network • Announced purchase of up to 24k Volvo XC90 vehicles for autonomous fleet • Signed an agreement with Daimler, in 2017, intended to provide self-driving Mercedes vehicles on the Uber Network

Sources: Company Data, Credit Suisse Research, Autonews, Techcrunch, Guardian, Fortune, 95 Electrek Dan Levy | 212-325-4617 | [email protected] AV strategy highlights by company (cont.) Company Autonomous Plans / Key Actions • DRIVE Platform (including AutoPilot, Xavier & AGX Pegasus) capable of supporting Level 2+ to Level 5 autonomous driving solutions, offered to hundreds of companies including: NVIDIA Veoneer, Volvo, Continental, Daimler, Bosch, etc. • Providing its Jetson AGX Xavier platform to power the next generation of autonomous delivery robots; JD.com and Meituan are a few of the many companies that use the platform • Planning to have an L3 autonomous vehicle (BMW iNEXT) on the road by 2021 • BMW and Daimler are investing €1 bn ($1.13 bn) into their joint car-sharing and ride-hailing businesses; the venture will combine Daimler's Car2go and MyTaxi, and BMW's DriveNow; Add'l both companies will collaborate to develop ADAS and autonomous driving technologies BMW • Alliance with Intel/Mobileye (subsequently added FCA, MGA, APTV, Conti) for development of L3/L4 autonomous vehicles with 2021 launch • Participated in the acquisition of HERE (Nokia's former mapping business) to gain location services key to self-driving vehicles; Daimler, Audi, and BMW collectively paid $3.1 bn for HERE during 2015 • Daimler's goal is to put the first driverless robotaxi on the road by the early 2020s (will begin as a pilot project) • Acquired majority stake in Torc Robotics (Mar 2019), which specializes in autonomous driving solutions, to create Level 4 autonomous trucks; Set up Autonomous Technology Group to develop highly-automated trucks, will start June 1 • Launching level 3 autonomous technology on the MY20 S-Class • Daimler and BMW are investing €1 bn ($1.13 bn) into their joint car-sharing and ride-hailing businesses; the venture will combine Daimler's Car2go and MyTaxi, and BMW's DriveNow; Daimler Add'l both companies will collaborate to develop ADAS and autonomous driving technologies • Entered into a development agreement, with Bosch, to bring fully automated (SAE Level 4) and driverless (SAE Level 5) driving to urban roads by the beginning of the next decade • Signed an agreement with Uber, in 2017, intended to provide Daimler owned, self-driving Mercedes-Bens vehicles on Uber's Network in the future • Participated in the acquisition of HERE (Nokia's former mapping business) to gain location services key to self-driving vehicles; Daimler, Audi, and BMW collectively paid $3.1 bn for HERE during 2015 • Started testing 'Truck 2025' in 2015, marked the beginning of Daimlers path to an autonomous semi • Planning to have Level 2+ personal vehicles by 2020, Level 3 personal vehicles by 2024, and Level 4/5 shuttles and shared vehicles after 2025 through its AVA (autonomous vehicle for all) programme; currently the group operates 15 AV prototypes and the company has driven over 120k km in autonomous mode (Level 2, 3, 4) PSA • Obtained a license to start autonomous driving tests on open roads in China (Chongqing) - 2019 • Was the first car manufacturer to test an autonomous car on open roads in France - 2015 • Planning to have its first unsupervised autonomous vehicles in the market by 2021 • Veoneer & Volvo's JV, Zenuity, was approval for hands-off self-driving tests on public roads in Sweden - Jan'19; Polestar 2 will be first model on market with Zenuity's ADAS stack Volvo • Provided Uber with 24k XC90 SUVs equipped with autonomous Tech in 2017; Further working with Uber to develop and build a fleet of autonomous cars, for Uber, to be deployed on Uber's network • Started testing five electric and highly-automated versions of its Golf compact cars on the streets of Hamburg • Volkswagen Group's goal is to launch a fully autonomous vehicle as early as 2021 • Announced plan in Oct'18 to collaborate with Mobileye to commence self-driving taxi service in Israel in 2019; targeting scale in 2022 (few hundred vehicles) VW Group • Announced they will spend €44 bn (~$50 bn) on electric cars, digitalization, new mobility and autonomous driving by 2023 • Will implement Level 3 autonomy (Traffic Jam Pilot) in the 2019 Audi A8; rolled out in Europe in the MY19 A8, however, delayed in the U.S. due to regulatory barriers • Founded Autonomous Intelligent Driving, an Audi subsidiary, with the goal to drive completely autonomously by 2021 • Participated in the acquisition of HERE (Nokia's former mapping business) to gain location services key to self-driving vehicles; Daimler, Audi, and BMW collectively paid $3.1 bn for HERE during 2015

Sources: Company Data, Credit Suisse Research, Autonews, Techcrunch, Guardian, 96 Fortune, Electrek Dan Levy | 212-325-4617 | [email protected] AV strategy highlights by company (cont.)

• Planning to have lane changing autonomous driving for highways by 2020 and urban level 4 autonomous vehicles for cities by 2025 Honda • Investing $2.75 bn in GM Cruise - Oct'18; including $750 mn upfront and $2bn committed over the next 12 years; participated in $1.15bn, May'19 GM Cruise funding round • Joined Baidu's autonomous driving alliance - Jun'18 ; the first Japanese automaker to join the initiative • Investing $40 bn over a 5 year period starting in 2019 to develop electrified models, autonomous technologies and transportation services Hyundai • Partnered with Aurora to develop Level 4 AVs by 2021 • Plans to commercialize autonomous convey driving capabilities by the 2020s; demonstrated level 3 autonomous truck driving in 40km real road cargo delivery journey • Planning to build commercially viable autonomous vehicles by 2020 • Alliance enters agreement with Waymo to explore driverless vehicle opportunities in France & Japan • Announced that the Nissan-Renault-Mitsubishi alliance is set to enter a tie-up with Waymo to develop autonomous taxis and other services Nissan • Partnered with DeNA to run field tests of its autonomous taxi service; aims for commercial service rollout in 1H 2020s • Established a VC fund with Renault and Mitsubishi, in 2018, to invest up to $1.0bn over 5 yrs in AV technology In Oct'17, Nissan began public road testing of autonomous driving vehicles • Planning to launch "Highway Teammate" in 2020 for automated driving on highways and "Urban Teammate" in the early 2020s for automated driving in cities • Considering a ~$550 mn investment in Chinese ride-hailing giant Didi Chuxing, with the intent to set up a joint venture to lease Toyota vehicles to drivers for the ride-hailing operator; Invested $1bn in Grab, a Southeast Asia's ride-hailing firm, in 2018 • Toyota AI Ventures introduces Fund II, a $100 million fund dedicated to investing in early-stage startups developing disruptive tech in autonomous mobility and robotics markets • Contributed along with Denso and Softbank to a joint investment of $1bn in the Uber ATG to accelerate the development & commercialization of autonomous ridesharing (04/19); the investment valued Uber's ATG at $7.25bn • Invested $500mn in Uber to bolster alliance in autonomous driving - Aug'18; the investment valued Uber at $72bn; Toyota will integrate Uber's self-driving technology into its Sienna minivans that will be used in Ubers ridesharing service. Toyota had previously invested $300mn in Uber - 2016 Toyota • New co. for AV formed by four Toyota group companies (Jtekt, Advics, Aisin, Denso) • Will produce the e-Palatte (autonomous, zero-emission vehicle) to be used for multiple services including: ridesharing, mobile office, retail space, medical clinic, etc.; planning to provide 3,000 e-Palette's for the debut at the 2020 Olympics In May'18 Toyota invests ¥400mn ($3.6 mn) in Albert for autonomous driving-related big data analysis • Partnered with Aisin Seiki and Denso to starts the Toyota Research Institute-Advanced Development (an offshoot of Toyota Research Institute) - 2017; collectively the companies will invest $2.8bn into TRI-AD • Announced collaboration with Amazon, Uber, Didi, Mazda, & Pizza Hut (Jan'18) to develop autonomous vehicles to deliver people or packages • Formed the Toyota Research Institute in Silicon valley to boost AI tech - 2015; committed to invest $1 bn in the company over the following 5 yrs • Contributed along with Toyota and Softbank to a joint investment of $1bn in the Uber ATG to accelerate the development & commercialization of autonomous ridesharing (04/19); the investment valued Uber's ATG at $7.25bn • Led $65 mn Series C Funding round in ThinCI with the goal of making autonomous cars a reality • Partnered with Aisin, Jtekt, and Advics to establish a new company for autonomous driving - Aug'18 Denso • Acquired 5% stake in Renesas from INCJ for the purpose of collaboration in autonomous driving technology and R&D; the investment was worth ~$800 mn based on market prices at time of purchase - Mar'18 • Partnered with Aisin Seiki and Toyota to launch the Toyota Research Institute-Advanced Development (TRI-AD) to develop autonomous vehicles; combined the companies plan to invest $2.8bn into TRI-AD • Invested $1 bn into its U.S. manufacturing with the aim of upgrading its EV and autonomous production systems-Oct'17

Sources: Company Data, Credit Suisse Research, Autonews, Techcrunch, Guardian, Fortune, 97 Electrek Dan Levy | 212-325-4617 | [email protected] Companies Mentioned (Price as of 24-Jun-2019) Credit Suisse’s policy is to update research reports as it deems appropriate, based on developments with the subject company, the sector or the market Adient PLC (ADNT.N, $22.01) that may have a material impact on the research views or opinions stated herein. American Axle & Manufacturing Holdings, Inc. (AXL.N, $11.76) Aptiv PLC (APTV.N, $78.31) Credit Suisse's policy is only to publish investment research that is impartial, independent, clear, fair and not misleading. For more detail please refer to BorgWarner, Inc. (BWA.N, $41.7) Credit Suisse's Policies for Managing Conflicts of Interest in connection with Investment Research: https://www.credit-suisse.com/sites/disclaimers- Dana, Inc. (DAN.N, $17.92) ib/en/managing-conflicts.html . 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